Rhetoric versus reality

Afternoon all,

Happy new year! Keir Starmer kicked it off talking about cost of living, and it was a pleasure to do the same on a special episode of More or Less (and to tick ‘meeting Tim Harford’ off the geek bucket list!). Since we recorded it before the Prime Minister’s comments, find a break-down of rhetoric versus reality below.

To brighten our 2026, registration is now open for the final conference of our Unsung Britain project in mid-February. We’ll be joined by Andy Burnham, Ken Murphy, Clare Moriarty and many more brilliant contributors. I’d recommend signing up sooner rather than later to avoid disappointment.

Plus, I would like to share a hearty congratulations to the two winners of our Christmas quiz Reeba Oliver and Harry Beeching, who came joint first with a score of 10/12. Needless to say, attendance at our conference will put you in a strong position for next year’s quiz!

Have a great weekend,

Ruth

Chief Executive
Resolution Foundation

If the shoe fits. We know that reskilling into high-demand occupations raises workers’ wages – so why do so few make the switch? Well, this paper finds that an individual’s perception of how well the job matches their identity is the strongest predictor of reskilling intentions. Expectations of job prospects, learning costs and demographics are also influential, but less so than perceived identity fit. The relative importance of these factors varies across occupations – in construction the average marginal utility (willingness to pay) of reskilling was close to zero for men, whereas women required compensation of 7 euros an hour to participate. This suggest efforts to boost job-switching to key industries shouldn’t neglect these demand-side frictions.

Subsidised students. Between 2004 and 2010, the Government provided an ‘Education Maintenance Allowance’ (EMA) to poorer pupils to encourage them to remain in education. So, did it work? And did it improve labour market outcomes? This paper (using administrative data to follow multiple cohorts) says, in a word, no. EMAs had high take-up (at one stage 42 per cent of 16-17 year old pupils received an EMA) but only led to a modest increase in education participation (3 ppts), and had no significant impact on qualifications achieved or labour market outcomes at the age of 31. Other analysis has drawn slightly different conclusions. This second paper tracked 3,200 young people (a much smaller sample size) to the age of 25, finding EMA-recipients were 7 ppts more likely to attend university. With Alan Milburn working on his review into youth inactivity, this kind of analysis is worth considering. Especially since even changing the law to keep kids in school till 18 has not impacted the NEET rate, which is currently headed in the wrong direction.

AI’s the limit. We don’t yet know AI’s full potential or the extent of its negative consequences. But new research provides analysis of AI’s impact on manufacturing supply chains in 30 Chinese provinces from 2012 to 2023, where it directly boosted resilience. AI enhances capacity for supply chains to withstand and adapt to internal and external shocks by boosting supply chain capabilities. AI also supports the wider economic ecosystem – promoting regional growth and improving industrial structures, further enhancing systemic resilience. The study finds AI’s impact is higher in urban areas and in places with already high levels of supply chain resilience. And the key to unlocking these effects? A developed underlying data ecosystem, without which, the tech’s potential is constrained.

Oleaginous observations. All eyes have been on Venezuela this week. Good time for this useful primer on Venezuelan oil. The country holds the world’s largest oil reserves at around 300 billion barrels – more than Iran and Iraq combined, and four times the US. Some estimates of the *economically viable* oil do go as low as 100 billion barrels, but that is, unequivocally, still loads. Despite massive reserves Venezuela produces relatively little oil, less than 5 per cent of US output. Production has collapsed since 2014 due to low prices, chronic underinvestment, and economic sanctions. As a result, they should be capable of continuing production at their current rate for as long as 1,500 years, contrasting sharply with the US’s 11 years (the chart showing years left of oil production for different countries feels… resonant).

Something for the weekend | Pocket trends

The Government wants to talk about the cost of living, with Keir Starmer claiming we’re “turning a corner” this year. But will voters really “feel the difference in their pockets”? Let’s examine the reality behind the rhetoric.

“Lifting half a million children out of poverty” The scrapping of the two-child limit is genuinely important – the most cost-effective way to reduce child poverty. It’s worth noting that the government figures compare 2029-30 with a scenario where the limit stayed. Since child poverty would otherwise keep rising, this isn’t the same as half a million fewer than today. Still, child poverty will fall meaningfully for the first time in 9 years (outside of the pandemic) and 360,000 children will be lifted out of poverty this year when the cap lifts.

“£150 off energy bills” Energy bills are indeed falling – although electricity and gas prices remain significantly higher than pre-Ukraine invasion levels. £150 reflects the value of government action, not actual reductions experienced. Our calculations show households on the price cap will see reductions in bills of £25 annually (1.5 per cent) in real terms come April versus summer 2024.

“Freezing rail fares” Less well-targeted relief, given poorer households use buses three times more than trains. In fact both rail and bus fares are down in real terms over the last decade. Food prices – much harder for government to control – remain nearly 40 per cent higher in cash terms than summer 2021, significantly more than the general rise in inflation.

“Feel the difference in their pockets” The key point is that 2026 is not expected to be a good sort of turning point for living standards, as measured by disposable incomes. Real household income growth was healthy in 2024 and 2025, but in 2026 is forecast at just 0.2 per cent – anaemic even by recent stagnant standards. Some families will benefit from the policies the PM cites, but most aren’t expected to experience sunny uplands just yet.

Chart of the week

Earlier this week our New Year Outlook cheerily highlighted that 2026 could be a demographic turning point for the UK, as deaths outnumber births for the first time ever (outside of wars and pandemics). This is not a UK-specific issue. Countries around the world are grappling with falling fertility rates – 1.41 in England and Wales, around 1.2 in Italy and just 0.75 in South Korea. All well below the 2.1 replacement rate, and all coming up with various pro-natal policies (including state-run dating apps!) But is the UK seeing fertility decline or fertility delay? Chart of the Week explores. Women are having children later – the average number of children they’ve had by 30 has more than halved – from 1.9 for the boomers born in the 1940s, to 0.7 for the millennials born in the mid-90s. Those boomer parents only had 0.6 more children after the age of 30. Gen X parents (born in the late 1970s) had almost as many children after the age of 30 (0.9) as before (1.0). We can’t know yet how big final family sizes will be for millennial and Gen Z parents. Time will tell – and the long run implications of delay versus decline will be very different.