The Cost of Living Crisis Facing Britain – Ed Miliband’s full speech

February 28, 2011 11:44 am

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By Ed Miliband / @ed_miliband

I want to begin by paying tribute to the work of the Resolution Foundation.

This independent commission you are launching today is important because it addresses a fundamental challenge which Britain faces.

Politics today is being conducted in the shadow of the financial crisis: the argument about the deficit and how to return the economy to growth.

But what your work is showing is that we cannot settle for a return to business as usual: life before the crisis hit.

That is, above all, because despite advances during the years of the Labour government, we have an economy which, for too many people, is not delivering.

I believe we should be willing to talk about the inequality in our society.

It is why I am in politics.

That is about the gap between the richest and poorest.

But it is about something else as well.

The 21st century inequality, the fairness divide in our economy, threatens to be about a division between the richest at the top who have been doing well, and the majority -lower and middle-income—who have been struggling to keep up: working harder for longer for less.

For many decades rising prosperity benefitted the bulk of working people.

But that assumption is breaking down. While those at the top have continued to do well, middle earners are no longer guaranteed to share in our nation’s success.

The result is a quiet crisis that is unfolding day-by-day in kitchens and living rooms in every town, village and city up and down this country.

The root causes lie in long-term changes in our economy. Over the last few decades less of what our economy produces has been paid out in wages – and more in profits.

The gains in productivity we have seen have not been reflected in earnings.

But this is only part of the story. There has also been growing inequality in earnings.

Since the late 1970s wages have grown almost twice as fast for the top 10% as they have for those in the middle.

Since 1979, 22p of every extra pound earned has gone into the pockets of the best paid 1%.

This tiny fraction of the workforce now takes home more than 14% of all earnings.

Our economy has become progressively less fair and the losers have been those on middle and low incomes.

Now of course wealth creation, with the dynamism and jobs it brings, is the prerequisite of a successful economy.

But ordinary families in Britain are being increasingly locked out of the benefits of economic growth.

And with that unfairness has come instability in our economy.

We should be in no doubt that the global financial crisis was the product of huge irresponsibility in the banking sector, as governments around the world failed to regulate as they should have done.

But why was there such a demand for cheap credit?

Because wages weren’t keeping up with the pressures on families too many were forced to borrow to finance their living standards.

So the squeeze on living standards did not just unfairly impact on those on low and middle incomes, it also built instability into the economy.

The Labour Party, under my leadership, is determined to understand the complex causes of these long-term trends so we map a path to a better future.

And we already know some of the big issues which are at their root.

The story of the last two decades is of an economy divided between high-skill, high productivity sectors and low-skill jobs.

At the same time, economic migration and greater labour market flexibility have increased the pressure faced by those in lower skill work.

Such issues were a challenge for the Labour government as the introduction showed.

The lesson is that a focus on growth is important, but not enough.

There is a difference between our government and this one: we did take action through tax credits and other decisions to help families.

But we were wrong not to focus more on the type of economy we were building and what that meant for the widening gulf between those at the very top and the rest.

In contrast, this Conservative-led Government’s reckless strategy for deficit reduction is now about to crash into these long-term trends.

The Government is contributing to already high inflation and the squeeze on living standards with their decisions.

And the crunch will be felt first and worst by low and middle income families, particularly those with children.

The rise in VAT is pushing the price of petrol at the pumps even higher.

Just when the costs of childcare are rising twice as fast as wages, this Government has cut the childcare element of working tax credit.

This year alone, on average a single-earner couple with children will lose over £1,500 a year – more than double loss of a couple without children.

And the changes continue beyond this year.

A single-earner couple with two children with earnings of £44,000 sounds well off.

But such a family will be hard hit by the £1,750 a year they will lose in one fell swoop when child benefit is scrapped.

These changes fail a fundamental fairness test: that families with children should be protected, not unfairly targeted.

And finally there are frontline service cuts, driven by the decision to go too far and too fast. According to independent work, couples with children will be hit twice as hard by cuts to services.

Taken together I believe these changes will mean a cost of living crisis for ordinary families in Britain which will have a deep impact for years to come.

My fear is that because the Government is making the situation worse, the cost of living crisis will not go away even when the economy recovers.

Walk down any street: behind those front doors families are anxious about how they will get by over the next few years.

Squeezed wages, squeezed prospects, squeezed aspirations.

That is why the British Promise, that the next generation would always do better than the last, is now under threat like never before.

Given how serious these challenges are, I’m pleased that independent organisations like the Resolution Foundation are going to work on these issues.

It will be for you to decide your focus, but let me at the outset of the Commission’s work, indicate some areas which I think are most important.

The central task is to build a different sort of economy; with prosperity rooted in high-productivity, high skill industries, creating quality jobs and a better quality of life.

And a tax and benefit system that supports families with children, not one which is increasingly skewed against them, as we see under this Government.

I don’t believe we can go forward to a fairer economy whilst remaining neutral about the quality of jobs we are helping our entrepreneurs and business people create.

We all have a vested interest in the industries we grow in Britain and the kinds of jobs and opportunities created.

That starts with serious thinking about how we create the incentives for business to break out of the low pay low skill cycle.

After 1997 the minimum wage did a huge amount to lift pay for the low paid.

And it also showed that Tory scare stories that the minimum wage would destroy jobs and growth were just that – scare stories.

As we did then, we need to work with business to see how we can improve living standards while maintaining levels of employment and competitiveness.

That’s one reason why I have proposed we look at the potential for tax incentives to reward the adoption of the living wage: supporting higher skill, higher productivity, higher growth companies.

It also means looking again at how investment in skills and technology can drive productivity growth, particularly in historically low-skill sectors of our economy.

The scale of the challenge is this: eight in ten German retail employees have completed vocational qualifications lasting two-to-three years and are more likely to progress to managerial careers; whereas only three in ten of their British counterparts are trained at the equivalent level.

We also need a more active industrial strategy.

That means ensuring that government does all it can to create the environment in which high-growth, high-productivity companies that create decent jobs can succeed.

It means looking at reforms to our banking system so that it properly supports businesses, including small businesses.

And we have a chance to do that as we consider how to dispose of the stakes we own in our banks. We should look at all options, including mutuals and private/public partnerships, as they have in other successful countries.

We also need to ensure all elements of government policy that affect private sector investment and growth work together: from investment in research, to ensuring we have the right regime for innovation, to the use of government procurement.

Next, we need a fairer tax and benefit system.

One which is fair for those in middle and low income jobs too. In particular, it must be fair for families with children.

The biggest gainers from Labour’s tax credits were families with children.

And the challenge of greater tax fairness for families will remain a central part of Labour’s agenda.

We hear a lot from the Tories and the Liberal Democrats about raising the threshold for the personal tax allowance.

Let me be clear. If they can offer some relief for hard working middle and low earners in this way then Labour will support it.

But I’m not going to fall – and the country isn’t either – for a big tax con.

Funding rises in the personal allowance through tax rises elsewhere like VAT and cuts to family tax credits and child benefit isn’t making the tax system fairer, it’s giving with one hand and taking away with the other.

Finally, we need to recognise that fairness is not just financial.

This might seem strange in a discussion about flat wages and rising prices but not, I think, to those families who are facing the cost of living crisis I have talked about.

Because the impact of the soaring cost of living for many people is not just felt in a more expensive weekly shop or at the petrol pump, it’s also felt in the pressure to work harder for longer, see their family less, and to borrow more, sometimes at exorbitant rates.

We need to recognise that for all of us, but particularly those families in the eye of the storm, there are aspirations beyond the bottom line.

So when I talk about higher quality jobs it is also the route to a better future in terms of working hours, family life and dealing with the pressures of living in modern Britain.

All of this is a big and long term task, not just for one year or for one parliament.

The task is to create a more prosperous capitalism but also one that is fairer than we had before the financial crisis. That won’t happen with this single issue Government: fixated on only one thing – cuts and tax rises to reduce the deficit.

We need to build a better economy: a high quality economy with high quality jobs – and run a government which works in the interests of the many and not the few.

And I look forward to the Resolution Foundations contribution to that debate.

Thank you.

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