For the first time in years, wages are at last edging slightly ahead of prices. For an economist, it represents a “turning point”, and a return to real wage growth. For the rest of us, it is just a relief, however paltry. Those on the average wage might find their incomes rising, after inflation, by about £1 a week in real terms; not quite enough for half a pint of beer in the pub, or a hot pasty, or a game of bingo. A statistical abstract in any case, and few will feel the difference.
It is overdue, however. The period since the recession began in 2008 has represented the longest and most painful drop in living standards for British families since the Second World War. Many lost their jobs and their income entirely; those who were fortunate enough to remain in employment saw the purchasing power of their wages savagely eroded by inflation, especially in the sort of everyday items families found it difficult to economise on – energy bills, food and petrol. Those who rely on benefits, with the exception of the protected retirement pension did badly. So, whatever the merits of higher tuition fees, did students. All who use the hard-pressed NHS, state schools and other public services saw a decline in what was once termed their “social wage”. Homelessness is up, while the top rate of tax is down. The charitable food banks face unprecedented demand. Many who are in jobs, often casual and part-time, or have turned to freelance work and self-employment have only done so because there are so few stable permanent positions available.
Still, the switchback to positive growth in the power of family budgets is no less welcome for all that. And now that the banks are starting to return to normality – symbolised in the sell-back of shares in Lloyds to the private sector and growth in mortgage lending – the British public have resorted to a traditional method of boosting their standard of living: credit. Again, this is welcome. No one should regard a semi-nationalised banking sector, interest rates at 0.5 per cent and a credit crunch as signs of a healthily functioning economy.
Politically, the return to real wage growth makes life easier for the Coalition partners. At last, it seems, there is come some vindication for the austerity regime. For Ed Miliband and Ed Balls the “cost of living crisis” is becoming a more difficult case to make – however marginally, it is now easing.
Economically, while it does represent a step towards recovery, the shape of the revival is still unsatisfactory. Business investment remains subdued, while we risk another bubble in residential property, with all that implies for financial stability and the wider economy. The Bank of England, now overseeing the housing market, has made a few worried noises, but the time has come to encourage a wider recovery while taking action to cool the residential property boom.
The Chancellor should back them in this. The election is still more than a year away – plenty of time for the housing market to turn, but not enough for it to recover once again. If it does crash, the electorate will not be forgiving. And even if it does not, wages will need to outstrip inflation by more than a fraction of a percentage point for voters to feel wealthy again. The economy may be at a turning point, but there’s still a long way to go.