The coalition are flunking the living standards test

One of the big questions voters ask themselves at every election is – am I better off now than I was five years ago? Sadly for millions of ordinary people by 2015 and the date of the next UK General Election the answer is on track to be a resounding no. This week the Office for National Statistics published figures revealing what tens of thousands already know from their own daily experiences: living standards are facing their biggest squeeze for 90 years, with a toxic combination of tax hikes, wage cuts, and the effects of George Osborne’s utterly disastrous austerity cuts programme. Over the first three months of 2012, real wages fell by 0.6% on the last quarter of 2011, and overall have slumped by 3% since David Cameron became Prime Minister, a rate of decline last seen in the 1970s. In terms of overall incomes in Scotland, the Coalition’s record is wretched – median incomes fell by 6% in their first year in office, a decline not seen since the dying days of the previous Tory Government in 1995/6.

Yet while it’s struggling make the pay cheque stretch to the last week of the month for the majority, party time continues unabated for those at the top. Up to £20trillion in assets owned by the super-rich has been salted away into tax havens, which is not even reflected in the Gini coefficient – normally the prime indicator of inequality. Even with a fall in the headline inflation rate likely, the continuing fall in real wages will continue to blight families spending power until 2016 at the earliest. Danny Dorling says inequality in parts of Britain is rising more quickly than at any time since the Second World War. Euromonitor International predicts inequality will have risen at its fastest rate for a generation by 2015, with average household disposable income having fallen by 2.6%, with the poorest tenth of people seeing their incomes fall by 7.8%, and only the wealthiest ten per cent enjoying a rise – of 1% by 2015 compared with May 2010.

As the US economist Joseph Stiglitz writes in his new book The Price of Inequality, the counter-cultural war being waged by the global political right is to divide the working poor from the unemployed, rather than to deal with the shocking wealth grab by the super-rich of the wealthiest 1%, who now own 14% of all assets in the UK. Disgracefully, as Scope pointed out this week, 46% of disabled people feel more anxious about abuse from the rest of the community because of Tory-inspired campaigns inveighing against so-called scroungers on sickness and disability payments, despite the facts showing just 0.5% of claims for Disability Living Allowance are fraudulent.

The ONS figures also reveal that benefits and the tax system took up six times more of the burden on maintaining overall incomes than wages between January and March, but this was prior to the destructive cuts in working tax credits which took effect in April, slashing the incomes of 220,000 people working less than 24 hours per week in Scotland, and 2million people across the UK, by up to £4,000 a year. A North Glasgow constituent working 20 hours per week recently told me her employer couldn’t give her extra hours because business was so bad, so she suffered the slashing of her tax credits, and was being forced to sell her modest ex-council house as a result. 70% of the pain from April’s tax credit cuts like these is being suffered by people on the lower half of the income bracket. Small wonder with economic demand at rock bottom even before the spring, the Child Poverty Action Group has cited this £3.1bn economic torpedo from the submarine Chancellor as a major reason for the catastrophic GDP figures published in the last week in July.

It’s not just collapsing living standards that are stranding us in the slowest climb out of a slump since the 1870s – it’s persistently high unemployment, and the growing level of under-employment, too. At the equivalent period from the start of previous recessions there were substantial levels of job creation, but in Scotland, latest figures show youth unemployment at 21% or 86,000, with a further one in five of those in part-time work desperate for full-time jobs but unable to get them – some 30,000 young people.

If permanent damage to the economy, and to the long-term prospects of young people, is to be avoided, the Chancellor must follow the crescendo of advice he’s receiving – and not just from the left. Even global big business, the CBI, and the International Monetary Fund – hardly a cell of socialist revolutionaries – are worried at the lack of demand in the economy, the depression in the construction sector, slumping manufacturing output, and a worsening double-dip recession shared only with Italy among G20 nations. Reversing the tax credit cuts, introducing a living wage, cutting VAT, and bringing forward capital spending for a major house building programme would all provide a boost to growth now. In the longer term, restoring the link between a growing economy, and real wages is among the biggest challenges we face, and we need an active trade union movement to help in this task. As the Resolution Foundation have discovered, in the three decades from 1977 the share of growth going in wages to people in the lower half of the income scale fell from 33p in every £1 of GDP generated in the UK to just 12p in every £1. Even the IMF and the Obama White House get it – reducing inequality raises the long-term growth rate. A major reckoning between labour and capital is coming. Austerity has led to ruin across Europe. It’s time to talk up the alternative.

William Bain is Labour MP for Glasgow North East and a Shadow Scotland Office Minister