Teresa has had the following article published in Politics First magazine; part of a series of contributions on how we can stimulate economic recovery in the UK:
The latest unemployment figures showed a slight drop in the number of people unemployed, but the Government shouldn’t be celebrating just yet. Labour market data is considered a lagging indicator of the economy’s health and there are many predictions that unemployment will begin to rise again this year. In reality the employment market is still incredibly tough for people who are out of work – in my Erith and Thamesmead constituency there are 12 people chasing every Job Centre vacancy advertised.
Economists have warned that the downturn in the UK manufacturing sector and the high numbers of jobs lost on the high street over the Christmas period will hit the economy hard in the coming months. The UK economy also contracted by 0.3% in the last quarter of 2012, with many believing we are on the brink of an unprecedented triple-dip recession.
Whilst employment is a key factor in determining the health of an economy, one factor that is equally as important, but often neglected, is wage growth. Britain is now heading for a fifth year of falling living standards, with a drop in average earnings growth last year from 1.7% to 1.4%. With inflation at 2.7% and predicted to stay above 2% for some time, workers are facing a squeeze on their finances that will bring even more misery to those already struggling with increased transport, fuel and food costs. This depressed consumer spending will further restrict the economy’s recovery.
Now, more than ever, is the time when the Government should be taking action to boost growth and wages. But instead the Chancellor has proceeded with drastic cuts to public spending that will make life worse for those people in our society who need the most help. The poor will be made even poorer by the Chancellor’s decision to cap rises in benefits such as tax credits and Job Seekers’ Allowance at just 1%. These cuts will just push more people into poverty and further depress growth.
Real wage growth was expected to return in 2013. However, in its latest update last December, the Office for Budget Responsibility put its forecast for real wage growth back until 2014 – a worrying move. The Trades Union Council (TUC) estimates that the average worker has already lost £4,000 as a result of wages failing to keep pace with rising prices and could lose another £2,000 by the end of this year. This is a damning indictment of a Government that is stubbornly sticking to the politics of austerity in spite of all the evidence suggesting the need to change course.
We urgently need decent wage rises, which will increase consumer spending and wider economic growth. The Government should be supporting increases in line with inflation at the very least and giving greater support to policies like the living wage, which as well as boosting growth would actually save the Government money. A recent report by both the Resolution Foundation and the Institute for Public Policy Research (IPPR) estimated that the extra money paid out in higher wages under a universal living wage would go straight to the Government, in the form of extra income tax and national insurance payments, along with reduced spending on benefits and tax credits for the lowest paid, leaving the Treasury with a net income of £2bn a year.
All the evidence points to the need for the Government to shift focus from draconian cuts towards policies, like a fair public sector minimum wage that is in line with the living wage, that will support investment, increase consumer spending and boost our flagging economy. If Ministers refuse to listen then I fear they will do even more permanent damage to our economy.