Is it really over? The longest squeeze on living standards since Victorian times is finally at an end – on paper at least. Across the economy as a whole, average wage growth has overtaken inflation, meaning pay is rising in real terms.
But averages can mask wide differences in individuals’ experience; and many in Britain will be asking themselves why they still feel no better off.
How flush or squeezed households feel, more than seven years after the crisis began, will very much depend on how old they are and where they lie on the income scale.
Young parents who have seen their tax credits cut and wages stagnate might balk at George Osborne’s repeated claims that “the economic plan is working”. But older voters, whose state pension has risen and who get an annual winter fuel allowance, could be forgiven for wondering what all the talk of a “cost of living crisis” is about.
That is the problem with averages – with typical wages and median incomes. For anyone trying to understand official figures the picture is muddied further by claims and counter-claims that will only grow louder as May’s election approaches.
It is that worry, about the robustness of income data and how it can be abused, that has prompted the independent thinktank, the Resolution Foundation, to come up with its own figures.
The thinktank has extrapolated from the most recent government data on family incomes and used newer earnings data to give a more up-to-date picture of household budgets.
It also uses a mathematical model incorporating all the coalition’s tax and benefit measures to assess the impact of changes on different demographic groups. It shows a much more nuanced picture than either main political party would have us believe.
The thinktank finds that typical household incomes are rising again, but the squeeze of the last seven years has been unevenly felt.
Age matters. From 2007 to 2014 households headed by someone of pensioner age saw their incomes rise by almost 10%. In contrast, typical incomes among working-age households fell by more than 4% over the same period.
Matthew Whittaker, chief economist at the Resolution Foundation says the better performance of pensioner households is partly down to a less severe squeeze on wages – workers in their 20s experienced pay falls more than three times as deep as those aged over 60.
Added to that is support from the “triple lock” that makes sure the state pension increases in line with rising inflation, earnings growth, or 2.5%, whichever is higher.
This deep divide between the way different generations have experienced the crisis is even more evident when economists look not just at day-to-day incomes, but also at accumulated wealth.
Quantitative easing, the Bank of England’s central recession-busting policy, tends to boost the prices of assets such as shares, helping people with hefty savings; while the housing market has bounced back strongly after dipping during the crisis.
That means people who already had assets – a home, a share portfolio – before the downturn have tended to fare relatively well.
A separate study by Prof John Hills, of the London School of Economics, shows that the generation born in the 1980s have barely been able to accumulate wealth; while their parents and grandparents have pocketed most of the gains of the recovery.
The latest figures available, which cover 2010-12, show that the median total wealth for households aged 55-64 was £425,000, including pensions, but it was just £60,000 for those aged 25-34.
Older generations always tend to have more wealth but to bridge a gap of this size would require young households to save, or make pension contributions, of £33 for every day for 30 years – surely an impossible feat for most.
What happens next will depend critically on how rapidly wages recover from their post-crisis lows – and where the next government, of whatever complexion, decides to place the burden of deficit-cutting. But it looks highly unlikely that today’s twenty-somethings will be as lucky as their parents.
