Official government statistics finally confirm claim that “austerity isn’t working”, by demonstrating 13% decline in household incomes

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Real national and household incomes have been falling due to a combination of the recession and high inflation, according to the government’s own statisticians.

(Pictured: Protesters gather for the TUC’s A Future That works demonstration. London, 20 October)

The data from the Office for National Statistics [ONS] describe an economy that has stagnated, where national well-being has fallen more steeply than previous surveys had recognised.

Unions say a ‘toxic combination’ of a pay freeze and inflation, bound to spiralling household debts is undermining a return to economic growth for the UK.

According to the ONS, in the second quarter of 2012, net national income per head in real terms was 13.2% below its pre-Credit Crunch level. This is a sharper fall than the 7% fall that GDP per head data indicate.

In the spring of 2012, real household actual income per head was 2.9% below its peak in the third quarter of 2009.

The authors of the ONS report blame inflation for the general erosion in household income, coupled with rising debt over the course of the recession.

In September 2011, for example, inflation peaked at 5.2%, whereas the annual rise in household actual income per head was 1.9% in the third quarter of 2011.

At the end of 2011, national debt was in excess of one trillion Pounds, the first time on record: equivalent to 65.7% of GDP.

Analysts at the ONS have compared real household actual income per head during the 1990s recession and the recession that began in 2008. (Graphic courtesy of ONS)

In the 2008 recession, initially household income held up better than in the 1990s recession.

The authors say this was partially a result of unemployment not rising to the same extent as in the previous recession, and historic low interest rates reducing mortgages payments for those on tracker mortgages.

However, in contrast to the recovery from the 1990’s recession, as the economy emerged from the contraction that started in 2008, real household incomes began to fall; a downwards trend that continued to the start of this year.

The study blames this primarily on increases in prices of fuel, utility bills and food, which meant real household incomes fell and would not stretch as far as they did previously.

Economic analysts say the ONS report marks a sea-change in how official statisticians view the effect of economic change on ordinary people’s lives and real incomes.

UNISON called on the Coalition to change tack and take urgent action to revive the stagnating economy and pull families out of financial hardship.

General secretary, Dave Prentis, said: “The bottom line is that the Government’s austerity agenda is creating a stagnating economy and causing misery to millions of workers and their families.

“The toxic combination of a pay freeze and inflation is undermining growth and making it harder for public service workers including nurses, care workers, paramedics, dinner ladies, cooks and cleaners to make ends meet.

“NHS and local government workers deserve better – they have put in for a substantial pay rise to start to close the gap made by rising inflation and the pay freeze.”

The ONS figures come after a recent survey of 350,000 people conducted for Unite revealed more than eight out of ten working people said their wages cannot last the month, with 12% of them having to use payday loan companies with extortionate rates of interest to tide them over.

Unite general secretary, Len McCluskey said: “There is a debt disease spreading across this country because of the Tories’ disastrous austerity agenda.

“It’s no wonder that more and more people across the country are falling into the clutches of pay-day lending sharks.

“We need urgent action from the government to cap extortionate interest rates which can pile misery on many working people struggling to make ends meet.

“This country needs a programme against mass poverty.

“Instead we have a government which is telling working families to sink or swim, while they give tax breaks to the rich.”

Unite says members have already reported drops in weekly income of around £66 per week since the April 2012 budget. In the six months since then, borrowing on credit cards and from payday lenders has increased by £128 per month to £328 – approximately one week’s wages.

Today’s ONS analysis is an attempt to understand what ministers and some commentators have described as the ‘growth conundrum’ of the current recession: strong employment growth coupled with no economic growth.

However, unions say the issue has been clear since the onset of the recession in 2008.

TUC general secretary Brendan Barber said:“An over-reliance on the housing bubble and personal debt exaggerated income growth in the run up to the recession.

“Now families have been hit by the biggest squeeze in their living standards in nearly a century.

“That’s why high quality jobs and a fairer distribution of decent wages must be at the heart of our economic recovery plan.

“A return to business as usual, where those at the top grab an ever larger slice of a dwindling earnings pie, will simply create another huge bust.”

Official figures later this week are expected to show that UK economic output grew in the last three months, officially bringing the double-dip recession to an end.

However, PCS general secretary Mark Serwotka said: “These cold statistics confirm what people in our communities have known for a long time, that austerity isn’t working and the government is not only failing to help those who desperately need it, but it is culpable in their suffering.

“We need an end to the public sector pay freeze immediately to put money back into our economy to drive growth but, more importantly, to improve living standards for people being punished for a recession caused by recklessness and greed in the financial markets and a lack of willingness to act by politicians of all parties.”


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