Living standards in Britain have suffered their most prolonged decline for at least half a century, according to official data that has been seized on by Labour as further proof of a cost of living crisis under the coalition.
A report from the Office for National Statistics found that real wages have been falling consistently since 2010, the longest such period since at least 1964, when comparable records began. Statisticians put the deterioration down to several factors such as a change in the number of hours people work as well as a fall in productivity.
The analysis further undermines claims made by the government last week that average take-home pay was rising for most workers.
Chris Leslie, Labour’s shadow chief secretary to the Treasury, took the figures as proof “working people are worse off under David Cameron”. “The Tories are so out of touch they deny there’s a cost of living crisis,” Leslie said.
The government circulated a Treasury analysis last week that claimed take-home pay had risen faster than prices between April 2012 and April 2013. Labour said that analysis used highly selective statistics, failed to take account of benefits changes and was at odds with recent pay patterns.
The main finding in the ONS report was based on different wage data from the Treasury’s analysis. But statisticians were still clear that real wages – which take into account the impact of inflation – had been falling on almost all measures.
The OFT also noted the data used by the Treasury was older than other readings on wages and that it had been distorted by unusual timing of bonus payments. Referring to the period after the Treasury’s analysis, the ONS report said:
“All series which reported in the third quarter of 2013 showed wages falling by more than 1.5% on the same quarter a year ago, making it difficult to conclude that there has yet been a break from the trend of falling real wage growth.”
Labour was given further ammunition in its campaign over the cost of living this week when the Institute for Fiscal Studies warned that living standards were unlikely to reach their pre-recession levels before the next election.
The general secretary of the TUC, Frances O’Grady, said the ONS figures raised concerns that the squeeze could continue for many years.
“Worryingly, average pay rises have been getter weaker in every decade since the 1980s, despite increases in productivity, growth and profits. Unless things change, the 2010s could be the first ever decade of falling wages,” she said.
The ONS said this latest period of falling real wages appeared to be the latest stage in a series of “step-changes in annual real wage growth, usually taking place in response to an economic downturn” – from an average growth of 2.9% in the 1970s and 1980s, to growth of 1.5% in the 1990s, 1.2% in the 2000s, and then -2.2% since the start of 2010.
“A number of factors may have contributed to this, although it seems likely that a key driver is the response to the fall in productivity in 2008 and 2009, and its subsequent weakness,” the report added.
The ONS also highlighted different inflation rates between what is produced in Britain and what is consumed, helping to explain the divergence between productivity and real wage growth since 2010. In other words, the rate of inflation experienced by workers spending their pay was not the same as the rate of inflation in the goods their employers were selling.
The effect from hours worked in the labour market was to put downward pressure on real wage growth during the downturn but upward pressure more recently. Real wages may also have been affected by rises in non-wage costs of hiring, such as national insurance contributions, which can prompt firms to tweak workers’ pay to manage their overall costs.
Worryingly for an economy still struggling to rebalance towards more manufacturing and away from reliance on consumer demand, there was some effect on real wages from the changing composition of Britain’s workforce. That came particularly from the shift from higher paid workers in the manufacturing sector towards lower paid services industries.
Business surveys suggest many companies are more optimistic about hiring this year but economists say with many people working fewer hours than they would like, there is still plenty of slack in the labour market and so limited potential for wages growth to accelerate.
Andrew Hunter, co-founder of the jobs website Adzuna, said the recovery in the jobs market was far from over.
“Wages are still stuck in a post-recession hangover – while the backlog of employees waiting for the right time to change jobs is clearing, salary levels are yet to catch up. Compared with this time last year, there are fewer people fighting it out for each position, but the chances of securing a decent salary have become slimmer,” he said.