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Rising living standards: a masterclass in selective statistics

January 24, 2014

The Centre for Research in Social Policy where I work feels really flattered that the Treasury rushed out some stats purporting to show that living standards are now rising, a couple of hours before the release our latest report showing how many more people have been falling below our minimum income standard. Many commentators have rightly pointed out that this only looks at earnings, prices and direct taxes, and not the benefits and tax credits that so strongly influence how the least-off quarter of our population live – including working people on low earnings. These have fallen in real terms, and including them would have wrecked the results.

The use of this kind of data may be a precursor of times to come. With real earnings projected to steady and then rise, but benefits, tax credits and the Universal Credit set to fall further in real terms, the narratives for “middle” and for “low income” Britain are likely to diverge.

But even for the former narrative, the Treasury has jumped the gun. It uses earnings figures for April last year to measure what is happening to incomes. This is when the latest detailed data on earnings are available (from the ASHE survey). However, other evidence, from the Labour Force Survey, shows that April was a high point for earnings growth, and a month when inflation dipped. This is convenient for the government, but does not represent what has happened since. Here is a graph showing this (click to see it in full)

Only briefly in April, and then briefly again in October, did average earnings rise close to “only” 1% below inflation. Importantly, the difference was made up by a particularly high increase in the tax allowance which feeds through into the annual change in real incomes between April 2013 and March 2014. From April 2014 onwards, a lower increase will reduce this effect by more than half.

So 2014 may be the year in which, for those not dependent on extra help from the state, real income growth returns. But it’s not happened yet, other than in a couple of “blip” months.


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