UK citizens economically worse off

Official figures have confirmed that real wages have dropped consistently since 2010, with an average annual fall of 2.2%.

Yet, rumbling beneath the big argument about whether the recovery is starting to make people better off in real terms, is a secondary dispute about how the burdens of hard times have been shared.

When David Cameron published some numbers last month which supposedly proved that real pay was rising again, his data came with the caveat that there was a big squeeze on the top 10%, whose incomes – the Cameron figures showed – had dipped below inflation.

Some government critics will deride the very possibility that a government that cut top-rate tax also could have presided over reduced inequality. And, indeed, the many shortcomings of the Cameron claims include reliance on outdated information, too old to capture that top tax rate cut, and disregard for gradual tax credit cuts for people of more modest means.

But the numbers were not entirely confected. Even after two or three years of this coalition, says new Institute for Fiscal Studies analysis – to be presented next week – the gap between high and low incomes was still smaller than before the crisis. There are several likely reasons: high-paying finance has shrunk, and – until recently – the bonuses and bumper pay checks were considerably down on the bubble years; until George Osborne’s freeze started to bite in April, benefits for the workless were protected against the inflation that was eating into pay checks for those in work; and the basic architecture of tax credits still remains in place to top up the meager salaries.

So, are we all in it together? Not at all. For, as the IFS has also written, lower-income groups will fare much worse over the post-recession period, mainly because of welfare cuts. Recovery or not, poverty is now set to deepen. This prospective divergence of fortunes gets even sharper when the prices of essential goods, which weigh most heavily in modest budgets, are factored in. These have risen particularly fast. Headline inflation has been 20% since the crisis, but food costs are up by 30% and energy 60%. This drags down lowly living standards by enough to undo the apparent narrowing of the income gap since the crisis.

Some commentators claim the whole cost of living argument is a distraction, a crowd-pleasing means of evading difficult discussion about making the economy work better. But they miss an important question – whose cost of living? – where the answers justify opposition complaints about a very particular crisis for those of modest means. Data suggesting Britons are all in it together seems too good to be true and it is increasingly plain that it is.