In a sharp rebuttal of Labour accusations that living standards have been squeezed over the course of this parliament, George Osborne said the following during his budget speech:
“You can use the most up-to-date and comprehensive measure of living standards which is real household disposable income (RHDI) per capita. In other words, how much money families have to spend after inflation and tax.
“It is the living standards measure used by the Office for National Statistics and by the OECD [Organisation for Economic Co-operation and Development].
“On that measure I can confirm, on the latest OBR [Office for Budget Responsibility] data today, living standards will be higher in 2015 than in 2010. And it confirms they are set to grow strongly every year for the rest of the decade.”
It is true that this metric is in use by both the ONS and OECD but not everyone is completely at ease with it. The Resolution Foundation thinktank have previously raised a couple of issues with RHDI per capita, as they feel it may be underestimating the squeeze on people’s living standards.
The problems are:
1. It includes the incomes of some organisations that probably cannot accurately be described as households, such as universities, charities and trade unions.
2. It uses the national accounts deflator as the source for its inflation figures, which is the standard way of measuring government output. However, as it is being presented as a measure of the direct experience of households, the Resolution Foundation feels the consumer price index (CPI) measure of inflation – based on the goods and services that households are buying – may be more appropriate here.
Readjusting for CPI, as the Resolution Foundation did following December’s autumn statement, shows that the recovery in living standards may be lagging slightly behind the measure that Osborne referenced today.
Under the CPI-adjusted figures, it is set to take another year for living standards to return to pre-crisis levels.
As today’s sluggish wage growth figures showed, the UK may have more people in jobs and the economy might be growing but whether the recovery is truly being felt door-to-door is up in the air.
