UK living standards - Bulgarians and Rumanians better off

It's getting worse: Brits near the bottom of living standards table

Plunge in pay puts Britain 24th out of 27 in EU

Mirror,

3 March, 2013

Skint Brits have suffered one of Europe’s worst drops in living standards.

The value of UK wages has plunged by 3 per cent since Chancellor George Osborne embarked on huge spending cuts in 2010.

The drop is revealed in new research, which puts Britain in 24th place out of all 27 EU nations in a study of rising and falling pay packets. The figures, which take into account inflation, show we are the fourth hardest-hit nation in Europe. Only Greece, Cyprus and the Netherlands have had bigger drops in pay.

Food prices in the UK soared by 5 per cent in the past year while millions of workers endure a pay freeze. Meat is likely to get even more expensive as the industry cleans up after the horse-meat scandal. The price of petrol has soared and heating bills have also rocketed.

The fall in UK pay is in stark contrast to Bulgaria and Romania which top the league, compiled by independent Commons experts.

Bulgarians enjoyed a 12 per cent rise in wages in real terms over the two years to autumn 2012. Romanians were 6 per cent better off.

Despite the crisis over the euro, countries such as France and ­Germany have done better than us.

Labour, who commissioned the research, said it showed the true impact of the flat-lining economy and big spending cuts. Shadow Chancellor Ed Balls last night called for urgent action to tackle the problem in Mr Osborne’s March 20 Budget, which comes weeks after Britain lost its AAA credit rating.

He said: “These figures show just how far Britain is falling behind the rest of Europe under this government. We are losing in the global race with only three out of 27 EU countries suffering bigger falls in living standards than us.

“A flat-lining economy under David Cameron and George ­Osborne over the last two years has made British people worse off.

“Urgent action is needed in the Budget to kick-start our stagnant economy and help people on middle and low incomes struggling with the rising cost of living.

“We need to bring forward infrastructure investment, build thousands of affordable homes and give tax breaks to small firms taking on extra workers.

“David Cameron and his downgraded Chancellor must heed the warnings and act or Britain will face more years of falling living standards and more long-term damage to its economy.”

- Large crowds gathered to protest against government cuts in Portugal imposed by euro chiefs, days after similar demonstrations in Greece.

You can fool some of the people....

SUSPICION of British economic policy is mounting

The Economist,

3 March, 2013

SUSPICION of British economic policy is mounting. Recent posts (here and here, for example) have highlighted my view that things are in a mess; the economy is flat and the government is missing its deficit target, even with the help of dubious accounting; inflation is above target and set to remain so, yet the Bank of England seems likely to ease further; sterling is the weakest major currency this year and the previous depreciation did little to help the trade deficit.

Other commentators are reaching similar conclusions. Erik Nielsen of Unicredit writes today that:

with the risk of sounding like a broken record, a weaker currency makes you poorer. In 1967, when the UK devalued the pound (by 14% against the dollar), Prime Minister Wilson famously assured his countrymen that “it does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.” I suggest that the day of such attempted money illusion has long gone, and why policymakers still tell their people that depreciation is a good thing beats me. If they think they can still fool the population, the London Sunday Times today includes an article titled “The smart way to holiday with a weak pound”, which starts as follows: “The plunging pound is sending holiday costs spiraling …”. 

And speaking of the Sunday Times, David Smith is one of the most respected economic journalists in the country. He writes today (behind a paywall) that

I am no longer sure monetary policy is safe in (the Bank of England's) hands

Short of erecting a sign on Threadneedle Street saying "Sell Sterling", the Bank could barely do more than signal its desire for a lower pound

The pound, clearly overvalued in 2000 when it was €1.70 is undervalued now at €1.16. It should not now be falling against a euro whose problems go beyond the tendency of Italians to vote for clowns. For the Bank to try to push it down is wrong.

Before concluding that the Bank

has rarely hit the 2% target for the consumer prices index over the past eight years and, on its own forecasts, will not do in the next two to three years. A decade of above-target inflation is, for any central bank, flaky. The Bank has lost its compass.

Not everyone will agree with these comments but this is the second blistering attack on British policy in recent days; the first by the economics editor of the FT (the accounting piece referred to above) and now the economics editor of the leading Sunday broadsheet. Of course, what international investors think is more important than what people in the media think, but the latter do influence the former.

Reading Dominic Sandbrook's account of 1970s Britain, Seasons in the Sun, is a reminder of the similarities and differences from that benighted era; back then there was a wage-price spiral which is not visible now. Of course, that era had strong trade unions that tried to protect their members' standard of living; this time round, imported inflation eats into real wages. The effect is less dramatic but it is still significant. As Jim Callaghan said when he took office as PM in 1976, in the middle of a sterling crisis

No one owes Britain a living and may I say to you quite bluntly that, despite the measures of the last 12 months, we are still not earning the standard of living we are enjoying. We are only keeping up our standards by borrowing and this cannot go on indefinitely

That remark made me look up the data; in 1976 Britain had a budget deficit of 7% of GDP and a current account deficit of 1%. The targeted deficit for this year is 6% of GDP and the current account deficit is 3.6%.