Archive for March 2012

Left behind in the lower realms of the labour market

Date: 28. March 2012
Matthew Pennycook

Times are undoubtedly tough for the 350,000-plus graduates who now leave university every year. Collapsing demand in some parts of our jobs market has seen competition for jobs intensify and many graduates now seek jobs for which they are over-qualified, accepting lower wages than their qualifications would usually be expected to command.

And yet for all the hyperbole of a ‘lost generation,’ graduates remain the overall ‘winners’ in our increasingly polarised labour market. The coveted graduate wage premium is still a reality with the average economic return to a degree remaining fairly constant (and rising steeply for top graduates). Possession of a degree is still associated with significantly increased prospects of moving up the earnings ladder.

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Osborne's budget: all in it together? Or are we ever more divided as cuts bite

Date: 24. March 2012
Gavin Kelly and

Gavin Kelly, The Observer

There's been much talk of the cuts hitting women harder than men. Certainly the government hasn't been slow to hit support for families – which ...

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Making sense of the budget

Date: 21. March 2012
Gavin Kelly


This post originally appeared on Gavin's New Statesman blog

“In this country we have to look upon budget promises as made of the same stuff as lover’s oaths.”  So said Lord Salisbury, three times Conservative PM, and his words are perhaps more apt than ever given that all the love drained out of the Coalition’s marriage some time ago. We need to sift carefully before being sure about what today really means.  

As with all Budgets we should start this process by asking what impact it will have on the overall economy, who wins and loses, and what it will mean for the political strategies of different parties. 

In terms of macroeconomics this budget was always going to be a non-event. It is broadly fiscally neutral, with only very minor upward ticks to growth forecasts. None of this is a surprise: this chancellor was always going to ignore those calling for more stimulus. This Budget, like all the others this Parliament, lives in the shadow of the choices made in the emergency Budget in June 2010 and subsequent spending review.


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A Budget For Working Families?

Date: 20. March 2012
Daniel Chandler

This blog originally appeared on The Huffington Post

Chancellor George Osborne says tomorrow's budget will be a budget for working families. "The bulk of the measures in the budget are going to be targeted at working people on low and middle incomes" he told the BBC's Andrew Marr on Sunday.

So, with budget day upon us, it's worth asking what a budget that genuinely put working families first would look like. At its heart would be a reversal of planned cuts to the Working Tax Credit (WTC) - which, as they stand, are set to hit precisely the people Osborne claims to be trying to help.

Why prioritise WTC rather than further increases in the personal tax allowance (PTA)? After all, if rumours are to be believed, working families can count on a substantial further increase in the level at which individuals start paying income tax towards the Lib Dem's flagship target of £10,000. This move will indeed benefit most working people on low to middle incomes - though not those earning less than the current threshold, due to rise to £8,105 in April. But raising the PTA is not a good way of targeting support at low and middle income households with relatively small benefits spread far up the income distribution, only petering out when individual earnings reach well over £100,000.


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Four tests for Osborne's Budget

Date: 20. March 2012
James Plunkett

This post originally appeared on The Spectator

With the Coalition taking pre-Budget briefing to new levels you’d be excused for thinking there’s little we don’t know about tomorrow’s statement. But here are four questions we can’t yet answer, and that will be crucial to assessing whether this is a Budget for low-to-middle earners as the Chancellor claims:

1) Will the new increase in the personal allowance be restricted to basic rate taxpayers? When the Coalition raised the allowance by £1,000 back in April 2011 they cancelled out the benefits to those at the top by lowering the 40p tax threshold. The second time around — the £630 increase that kicks in this April — they didn’t. From the sound of things, Osborne is now set to announce a further large increase in the allowance for 2013 and possibly even beyond. So will he focus the benefits on basic rate taxpayers this time?

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Osborne opts for the tax politicians love...

Date: 20. March 2012
Gavin Kelly

... and economists love to hate. 

This post originally appeared on Gavin's New Statesman blog

George Osborne's budget morning story, that Stamp Duty will go up to 7 per cent on properties over £2 million, shouldn't really surprise us. It has strong echoes of Gordon Brown's 2010 budget day story about hiking Stamp Duty up to 5 per cent on homes above £1 million in order to fund a tax cut for first time buyers. It's the tax that politicians have grown to love, and economists love to hate.

Not that the Chancellor will care much but he should expect plenty of gnashing of teeth from the dismal profession. Stamp Duty is after all a tax on labour mobility (a key economic resource), so it keeps people living in places they'd rather leave and makes it less likely they will move to take new jobs (though how much of a barrier this will be to those in a position to fork out £2m is far from clear). And the way it is currently structured results in major distortions in the housing market as small increases in house price generate large leaps in the tax owed.


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Budget 2012: George Osborne is hitting families even harder

Date: 20. March 2012
Vidhya Alakeson


This post originally appeared on The Guardian website

Although the chancellor will only step up to the despatch box to present his budget later today, we already know about the changes that will have the greatest impact on Britain's working families. That is because governments are in the habit of announcing changes years in advance, ensuring families are caught unaware when the changes are actually implemented. It was in his 2010 budget rather than today's that the chancellor announced a £2.4bn cut to tax credits that will take effect from this April. According to analysis from the Resolution Foundation, none of the 2 million families on low to middle incomes currently claiming working tax credits will be unaffected, with some standing to lose thousands of pounds.

This year's cuts follow hard on the heels of last April's cuts to tax credits. With the price of essentials still high, many families are struggling to see how to tighten their belts further. Heating has already become a luxury, as has the car, and they have already downgraded to value brands at the supermarket. In a survey of nearly 2,000 parents conducted by Netmums, the online parenting organisation, more than half of those surveyed felt they were living on the edge, with only a small increase in spending or a small decrease in income enough to tip them into crisis. Nearly one in five parents reported skipping meals themselves to make sure they could still put food on the table for their children.


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Tax credit cuts: a false economy

Date: 16. March 2012
Giselle Cory

This blog originally appeared on Public Finance

If the Chancellor wants to help low to middle income households, he would be wise not to sacrifice tax credits, by far the most progressive way to help poor families

Seventy per cent of April’s new cuts to tax credits will fall on households in the bottom half of the income distribution band if the government goes ahead with proposed changes to working tax credits.

The cuts, announced at various points over the last two years and accounting for over £2.4bn in 2012/13 alone, are by far the biggest cuts to tax credits yet.  Of the 2 million people on low to middle incomes currently claiming Working Tax Credits, all will be affected in some way. For some families, individual losses will run to several thousand pounds. Moreover, these cuts will disproportionately impact on households with children, as recently reported on by the IFS.

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The price of motherhood

Date: 15. March 2012
Vidhya Alakeson

For the first time last year, the hourly gap in pay between full-time working men and women fell to 10 percent. While that’s not good enough and is still higher than in much of the rest of Europe, it is a sign of enormous progress in reducing work place inequality. In 1997, the hourly full-time pay gap was double. Unfortunately, this is less true for mothers. While employment among women without children is similar to that of their male counterparts, employment among mothers falls far behind. So while we should celebrate our progress on gender equality, the price of motherhood remains too high.

Part of the high price of motherhood comes from the fact that many women with children want to work part-time but in order to do so, they have to take a big cut in position and pay.

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Is Osborne really about to give people on £100k a tax cut?

Date: 14. March 2012
Gavin Kelly

This post originally appeared on Gavin's New Statesman blog

As we close in on the budget most eyes are still fixed on the fate of the 50p tax rate. Ignore for a moment some of the squeals from Labour on this issue (more in excited anticipation that it will be axed than horror) and spare a thought for the dwindling band of true Tory modernisers. Their two central ambitions over recent years have been to demonstrate an unswerving commitment to the NHS, and to show that they could govern the economy -- and tax policy in particular -- in the interests of the broad majority rather than the affluent elite. They are struggling to believe that having watched the coalition conspicuously squander the first of these strategic objectives that it could be planning to deliver the last rites to the second too.

Yet whatever the decision on the 50p tax rate, the heated debate over it risks obscuring another more nuanced, but still highly revealing choice facing Osborne. Who should benefit from the widely expected and costly increase in personal tax allowances: the vast majority of all tax payers, including individuals to over £100,000 a year (and indeed households on £200,000), or just basic rate tax-payers? An important issue in its own right -- and one which has been given new impetus by the coalition's travails over Child Benefit.

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Explaining the child benefit saga

Date: 6. March 2012
Gavin Kelly

This post originally appeared on Gavin's New Statesman blog

Observing a government in the midst of a policy u-turn is rarely an elegant sight. When it is drawn out over an extended period, and fuelled by briefing and nods and winks from the PM downwards, it is even less edifying. So it is with the coalition's current contortions on Child Benefit.

None of the proposals being discussed as improvements to the coalition's original idea (to axe Child Benefit for households with a higher rate tax payer) are attractive. All are likely to be an administrative nightmare. Indeed, if the government could press rewind I doubt very much they would choose to repeat the initial pledge they made (not withstanding polling evidence showing it could be quite popular). And if they could press fast-forward into the future my guess is that they would probably decide not to plump for the sort of complex proposal that they are reportedly leaning towards (for instance creating what would in effect be a new tax threshold at £50k).

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The problem of low wage work runs far beyond workfare

Date: 3. March 2012
Matthew Pennycook

This article originally appeared in the Huffington Post

The recent furore surrounding the UK government's Work Experience programme has centred somewhat narrowly on the rights and wrongs of large corporations benefiting from free youth labour. Largely absent from the debate has been the wider problem of low wage work in our economy. At a time of rising unemployment one could be forgiven for thinking that raising job quality and wages is hardly a priority. Yet there are good reasons for believing that, alongside the pressing issue of unemployment among low-skilled workers, improving low paid jobs will be one of the key routes to higher living standards in the next decade.

Precarious low paid work - often with little means of advancement - is now a key feature of labour markets in advanced economies throughout the world. A combination of factors have driven its onward expansion including declining worker bargaining power and technological advances that have driven down wages for tasks traditionally undertaken by low and medium-skilled workers while increasing the demand for low-skill, low-wage work in personal service sectors.


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The Changing Shape of the UK Job Market

Date: 2. March 2012
Craig Holmes

This post appeared on the OECD Insights blog

It’s becoming more and more common to hear both researchers and policymakers talking about the UK developing an hourglass labour market. This is the idea that, because of technical progress, many middle-skill, middle-wage jobs (such as assembly line operators and clerical workers) have been replaced by machinery, hollowing out the labour market. This leads to a polarisation of employment into either high skill jobs – managers, professional and technician - or low wage work, particular in personal or retail services.

While we readily see this change in the types of jobs people are doing, it is less clear what effect this had had on the distribution of earnings. If everything else in the labour market had stayed the same, this hollowing-out would certainly be the cause of rising wage inequality. However, over the past thirty years, polarisation is just one of a number of changes which have impacted what people are paid. So the question is: what impact has it really had on earnings?

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The prime minister needs to think long

Date: 1. March 2012
Gavin Kelly and Nick Pearce

Gavin Kelly, Financial Times

The ongoing NHS debacle reveals far more than Andrew Lansley’s lack of political acumen. It also tells us about the governing habits of the coalition ...

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