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10 ways that show the economy isn’t working for working people

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After nearly a decade of austerity, our economy isn’t working for working people.

Ten years of weak growth and under investment have been exacerbated by the Hobson’s choice of Boris Johnson’s hard Brexit or a disastrous no-deal Brexit.

Cut to vital local government funding and public services, falling real pay and stagnant wage growth and rising child poverty and food bank usage are all part of a toxic cocktail of challenges facing working people.

It’s clear that the outgoing government has not stood up for working people and their families.

But just how bad are things? We’ve put together ten ways in which the economy isn’t working for working people.

Economic mismanagement

1: Stagnant growth

The easiest way to measure the size and health of the economy is to look at GDP (Gross Domestic Product) growth.

Boris Johnson recently boasted that the economy is ‘strong and growing’, but this is far from reality.

The latest GDP figures from November show the lowest growth since 2010 – well below half the long-term average.

Chart 1: UK Four Quarter growth 2009-2019

Chart 1: UK Four Quarter growth 2009-2019.

2: Broken public finances

We were told austerity was necessary to reduce the deficit, but the government missed every target it set for deficit reduction. As a result, by 2023/24 the cumulative deficit will be twice the governments original plan.

Chart 2: Borrowing and government deficit to 2023/24

Chart 2: Borrowing and government deficit to 2023/24

3: Slump in investment

The Bank of England recently warned that business investment intentions continue to weaken and remain at a 9 year-low [1] .

Chart 3: Investment intentions over next 12 months

 
Chart 3: Investment intentions over next 12 months
Source: Bank of England

Low investment in the UK is nothing new. Since the start of 2016, the UK has seen some of the slowest net investment of the G7 economies. UK GFCF (a measure of government and non-government investment) has increased 2.8 per cent versus the G7 average of 7.6 per cent.

Chart 4: GFCF (net investment) Growth UK versus rest of G7

 
Chart 4: GFCF (net investment) Growth UK versus rest of G7
Source: ONS (index Q1 2016 = 100, chained volume measure, seasonally adjusted)

A Crisis of work.

4: Work is no longer a route out of poverty

As the UN Rapporteur stated in his report on poverty in the UK, work is no longer a means to ending the poverty trap [2] . The number of people in working households who are living in poverty has risen from 5 million to 8 million over the last 15 years.

Chart 5: In-work poverty

 
Chart 5: In-work poverty

And the number of children from working households living in poverty stands at 2.9 million - an 800,000 rise since 2010 [3] .

5: Employment may be high – but so is insecure work.

There are now 900,000 people on zero hours contracts with no guaranteed income. This has risen by 100,000 in just the last year.

Chart 6: Zero hours contracts

 
Chart 6: Zero hours contracts

The worst pay crisis for two centuries.

6: A crisis of pay

The last ten years have been characterised by falling and stagnant pay for many working families.

Real pay (adjusted for inflation) has still not recovered to pre-2008 levels. In total the average worker is still over £14,200 worse off now than if real wages had remained at 2008 levels.

Chart 7: Median weekly wages compared to 2008 level 

 
Chart 7: Median weekly wages compared to 2008 level.

Meanwhile, as working families continue to struggle with sluggish wage growth, pay for the highest earners has recovered much faster than for everyone else. Since 2016, pay for the top 1 per cent has increased by 7.6 per cent (the top 1 per cent typically earn £160,000, the top 0.1 per cent earn £650,000 [4] or more). By comparison, the typical worker ( earning around £22,000 ) has seen theirs grow by a dismal 0.1 per cent.

Chart 8: Percentage change in real wages across pay distribution (2016-2018, based on ASHE 2018 figures.)

 
Chart 8: Percentage change in real wages across pay distribution (2016-2018, based on ASHE 2018 figures.)

7: Household debt is soaring

Struggling to make ends meet, many families and young people are grappling with the burden of unsecured debt (credit cards, overdrafts, loans). The average household debt is now £14,200 and 1 in 10 households are heavily burdened with debt repayments [5] .

Chart 9: Household debt 1987-2019

 
Chart 9: Household debt 1987-2019

Communities and families devastated by austerity

8: Poverty

Despite being one of the richest economies in the world, poverty in the UK persists. Many of the reforms to social security have pushed families and working people below the breadline, so that today in the UK:

- 14 million people live in poverty [6] .

- 4.1 million children are living in poverty [7] .

- 57 per cent of those living in poverty are from working households [8] .

- The Trussell Trust network of food banks alone gave out 1.6 million food parcels last year [9] .

The UN’s damning report on poverty in the UK concluded that the approach taken to welfare and other reforms has been ‘punitive, mean spirited and often callous’ [10] .

9: Regional imbalances

Between 2010 and 2017 there was much higher economic and employment growth in London compared to the rest of the country. In fact, the economy and employment in London grew more than twice the rate of everywhere else.

Chart 10: Economy and Employment growth by region

 
Chart 10: Economy and Employment growth by region
Source: ONS; economy / GVA figures for 2017

But despite more economic and employment growth, London has been plagued with falling real weekly wages (just like everywhere else). Yet in the ten years before the financial crash, real wages were growing in every region of the UK.

Chart 11: Percentage change in real median weekly earnings for all employees

 
Chart 11: Percentage change in real median weekly earnings for all employees

10: Local authority cuts

Local authorities provide many of the vital services we rely on. Since 2010 non ring-fenced funding has been cut by 86 per cent (£27.6bn), resulting in cuts to essential social care and mental health provision and closures of vital community assets such as libraries, children’s and community centres [11] . Councils face a funding gap of £25.4bn by 2024/25.

Chart 12: Local Authority Funding gap 2019/20 & estimates 2024/25

 
Chart 12: Local Authority Funding gap 2019/20 & estimates 2024/25.
Source: NEF