30 Nov 2011

Who has disposed of Britain’s disposable income?

There is one factor that towers above the potential euro meltdown, and even the dismal statistics in the Autumn Statement.

There’s an already existing meltdown affecting everyone in Britain. The Institute for Fiscal Studies have outlined the scale of the squeeze British people face. And it’s incredible in whatever currency.

It calculates that disposable income, the money that an average family has to spend, will drop by 4.7% in the three years from 2009 to 2012.

Now that’s the worst on record, but it’s sobering when you see by just how much it’s a record. The previous worst three year period for disposable incomes was a decline of 1.9 percent back in the seventies.

So this squeeze is quite without precedent in post-war Britain. British families’ disposable incomes are being disposed of. But even that use of an average overstates things because much of the growth has been going to the richest.

If you use a different type of average, the middle, or median income, the fall between 2009 and 2012 is 7.4%. Incredibly, median household incomes will be lower in 2015 than in 2002 – not just a lost decade for families – in fact a lost 13 years. The promise of rising living standards – crushed.

What does that mean for an average family? Take a couple with two children. Their average income in 2002 was 612 pounds a week. By 2015 – that will be 606 pounds, says the IFS, and that’s after inflation. So two meltdowns … one very real and already affecting large swathes of the nation.

Separately the analysis of winners and losers makes for grim reading. Of the measures coming in to force in the next fiscal year 2012/13 the pattern is clearly regressive: the poorest third lose about 1.5% of their incomes, the richest third around 0.3%.

But if you look at the measures announced during the actual autumn statement, they aren’t just regressive. The poorest third actually lose money, and it is effectively transferred to the richest half. It’s a reverse Robin Hood, taking from the poor to give to the rich. The total amounts aren’t huge. But it’s perhaps no surprise that the Treasury distributional tables have been ejected from the main fiscal document into a sub-pamphlet.

If the deficit is to be cut primarily by spending cuts, it was always going to be done on the back of the poorest. I was amazed that the Coalition started publishing these tables in the first place.

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