Official statistics released today show that wages have fallen again after accounting for inflation. While consumer prices rose by 2.7 per cent last year, wages were just 1.4 per cent higher in the last quarter of 2012 compared to 2011. This means real wages are down 1.3 per cent. The silver lining to the squeeze on wages is that workers are becoming more financially attractive to employers, who are hiring more. Employment in October-December last year was up 154,000 compared to July-September and up 584,000 compared to 2011.
That is great news. Unemployment levels are shocking and the fact that wage restraint appears to be holding it down means hundreds of thousands of families will not have to suffer the many problems that come with it. But the grim prospects for better wages in future gives no cause for celebration. Less wasteful spending, a simpler, fairer tax system and policies to strengthen market competition are all required to shock the economy back into life and restore growth in living standards.
The TaxPayers’ Alliance constantly identifies wasteful spending, most recently highlighting the rise in the number of town hall middle managers paid over £50,000 a year. And our 2020 Tax Commission’s Single Income Tax has comprehensively set out the case for serious tax reform.
The Centre for Policy Studies yesterday published a report by Dominic Raab MP calling for the Government to phase out subsidies and make it easier for consumers to switch companies in health, water and energy markets. It also recommended allowing for-profit companies to offer academies and free schools to parents who want them.
These are the types of ideas that ministers should be working towards and implementing now if they want to restore underlying productivity growth to the economy so that employment can rise in future not because real wages and living standards are falling but alongside higher wages and better living standards.