The State of Living Standards 2014 ……………………………………………………………………………………………………..

Presented by

James Plunkett - Resolution Foundation Alex Hurrell - Resolution Foundation

Peter Kellner - YouGov

#livingstandards

1

February 2014

#livingstandards

With the economy having reached a turning point, now is a timely moment to take stock

……………………………………………………………………………………………………..

ASSESSING THE DAMAGE

• How has the macroeconomic story of the downturn compared to the story for living standards?

• As the dust clears, who felt the pain of the five years from 2008 to 2013?

3

With the economy having reached a turning point, now is a timely moment to take stock

……………………………………………………………………………………………………..

CHARTING THE RECOVERY

• Will the recovery quickly feed through into rising incomes for most households?

• How sustainable is the recovery when these income trends are stood alongside household spending and debt?

4

……………………………………………………………………………………………………..

1. Assessing the damage

2. Charting the recovery

5

……………………………………………………………………………………………………..

6

The squeeze on living standards started earlier, and will last longer, than the overall recession

95

100

105

110

115

120

125

130

135

140

1997 2002 2007 2012

GDP

……………………………………………………………………………………………………..

7

The squeeze on living standards started earlier, and will last longer, than the overall recession

95

100

105

110

115

120

125

130

135

140

1997 2002 2007 2012

GDP

Total disposable income

……………………………………………………………………………………………………..

8

The squeeze on living standards started earlier, and will last longer, than the overall recession

95

100

105

110

115

120

125

130

135

140

1997 2002 2007 2012

GDP

Total disposable income

Disposable income per head

……………………………………………………………………………………………………..

9

The squeeze on living standards started earlier, and will last longer, than the overall recession

95

100

105

110

115

120

125

130

135

140

1997 2002 2007 2012

GDP

Median household income

Total disposable income

Disposable income per head

……………………………………………………………………………………………………..

10

A sustained squeeze on incomes of this kind is unusual—including in past recessions

Real disposable income per head

Regional variations are stark and tell a surprising story when looked at per capita

11

12

The employment picture remains strong (though tougher than sometimes reported)

……………………………………………………………………………………………………..

-1,500

-1,000

-500

0

500

2009 2010 2011 2012 2013

Raw number of jobs

Number of jobs and jobs gap, population aged 16 and over Change since 2008, thousands of jobs

13

The employment picture remains strong (though tougher than sometimes reported)

……………………………………………………………………………………………………..

-1,500

-1,000

-500

0

500

2009 2010 2011 2012 2013

Raw number of jobs

Jobs gap after population

growth

Number of jobs and jobs gap, population aged 16 and over Change since 2008, thousands of jobs

……………………………………………………………………………………………………..

14

Average weekly hours worked per worker

31.0

31.2

31.4

31.6

31.8

32.0

32.2

32.4

2004 Q1 2008 Q1 2012 Q1

Underemployment and job insecurity remains a problem but is widely misunderstood

Underemployment and job insecurity remains a problem but is widely misunderstood

……………………………………………………………………………………………………..

15

Proportion self-employed Median earnings of self-employed

……………………………………………………………………………………………………..

16

……………………………………………………………………………………………………..

The flipside of jobs figures has been a steep and sustained fall in real wages

Median annual earnings £ per year, RPIJ- and CPI-adjusted

The young have borne the brunt of the collapse in real wages

……………………………………………………………………………………………………..

17

Changes in gross weekly earnings, 2008 to 2013 RPIJ-adjusted

State support has accentuated job market trends meaning very different trends in income by age

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……………………………………………………………………………………………………..

Growth in net income for pensioner and working-age households Index, 1997-98 = 100

……………………………………………………………………………………………………..

1. Assessing the damage

2. Charting the recovery

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The recovery has so far been powered by household spending ……………………………………………………………………………………………………..

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21

……………………………………………………………………………………………………..

And with incomes still flat, household spending is being fuelled by savings

Debt-to-income ratios look set to return to pre-crisis levels

……………………………………………………………………………………………………..

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Prospects for household incomes ……………………………………………………………………………………………………..

• Future path of average household incomes driven by…

• Earnings growth: forecast to remain surprisingly weak

• State support: set to decline (with further cuts yet to be announced)

…meaning overall forecasts for incomes are weak

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Median incomes look likely to rise by 2015…… ……………………………………………………………………………………………………..

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…. but household incomes will remain below their 2008 level for years to come ……………………………………………………………………………………………………..

25

GDP per head

70

75

80

85

90

95

100

105

1996-97

2006-07

2016-17

…. but household incomes will remain below their 2008 level for years to come ……………………………………………………………………………………………………..

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GDP per head Median income

70

75

80

85

90

95

100

105

1996-97

2006-07

2016-17

…. but household incomes will remain below their 2008 level for years to come ……………………………………………………………………………………………………..

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Median (working-age)

income

GDP per head Median income

70

75

80

85

90

95

100

105

1996-97

2006-07

2016-17

……………………………………………………………………………………………………..

• There has been an unprecedented squeeze on incomes…. – Evenly shared in some respects (earnings, incomes) – Very unevenly in others (regions, age)

• Household income growth likely to be weak for some time

– So for many, economic recovery will not necessarily feed through to strong rises in living standards

– Also raises questions around sustainability of recovery (in context of high and rising debt levels)

• But what do the public actually expect ‘recovery’ to feel like?

– Regaining momentum? – Making up lost ground?

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In summary

………………………………………………………………………………………………………………………………………… …………………………………………………………………………………………………………………………………………

The state of

living standards

YouGov/Resolution Foundation survey results

After an uptick in August, only a quarter of people now think they will be better off come the election

……………………………………………………………………………………………………..

19%

25% 24%

46%

26%

34%

28%

40%

34%

Feb '13 Aug '13 Feb '14

Better off than you are today Worse off than you are today About the same

In May 2015, do you think you will be…

A majority of people think that with the right policies, a government can secure rising living standards

……………………………………………………………………………………………………..

35%

41%

34%

50%

41%

52%

Feb '13 Aug '13 Feb '14

These days it is very hard for government to secure higher family living standards. Looking to the next election in 2015 and beyond,the most that we can expect of government is to secure a stable economic and business environment, with sound public fina

Looking to the next election and in 2015 and beyond, it should be possible for a government with theright policies to ensure that overall growth in the economy results in steadily rising family livingstandards.

These days it is very hard for government to secure higher family living standards. The most that we can expect of government is to secure a stable economic and business environment, with sound public finances, low inflation and some overall growth in the economy.

Taking everything into account, which of these statements comes closer to your view?

There is broad division on what constitutes a recovery in living standards

……………………………………………………………………………………………………..

9%

7%

46%

39% See their incomes starting to rise again

Get back to the sort of income level they had before the crisis

Other

Don't know

Some people have spoken about living standards and said that these may be recovering from the recent economic downturn. Which one of these statements come closest to your view? ‘Recovery in living standards' is when most households...

Those intending to vote Labour or Liberal Democrat in 2015 are more likely to define “recovery in living

standards” as a return to pre-crisis incomes

50

40

6 5

35

52

5 8

43

50

5 3

0

10

20

30

40

50

60

Recoverymeans rising

incomes

Recoverymeans

repairedincomes

Somethingelse

Don't know

Conservative

Labour

LiberalDemocrat

In comparison, by 2010 vote: Recovery means rising incomes: Con 50, Lab 40, Lib Dem 34 Recovery means repaired incomes Con 39, Lab 46, Lib Dems 51

The State of Living Standards 2014 ……………………………………………………………………………………………………..

Presented by

James Plunkett - Resolution Foundation Alex Hurrell - Resolution Foundation

Peter Kellner - YouGov

#livingstandards

34