As real incomes fall relative to cost of living, John Humphrys asks, what role do governments play in promising us improvements they cannot deliver?
It is a cardinal rule of democratic politics: a party that wants to win power must claim to the voters that it can provide them with a more prosperous future. ‘A Better Tomorrow’, ‘Things Can Only Get Better’ – these are just a couple of election slogans which parties have successfully brandished to get into government. But it is exactly this sort of promise which no party can seriously make over the next couple of years. What will be the effect on our politics?
This week the highly-respected Institute for Fiscal Studies has produced a report setting out the pretty grim prospects for our prosperity over the next few years. It says that the income of people with earnings bang in the middle of the population (the so-called median income) will fall by 7% in real terms between 2009 and 2012. A knock-on effect is that child poverty, which all parties have committed themselves to eradicate by 2020, will actually get worse, both in relative and absolute terms.
This ‘unprecedented collapse’ in income, the biggest three-year fall for 35 years, is easily explained. The recession which followed the world financial crisis of 2008 has made our economy 7% poorer than it was. What’s more, recovery from that recession has been very sluggish both here and in other equivalent countries. That means it will take a very long time for us simply to get back to the level of prosperity we enjoyed just a few years ago, never mind actually starting to feel richer.
Families are already feeling the pinch very acutely. Most people’s wages have not risen over the last couple of years and many have suffered actual cuts in pay. Meanwhile the cost of living has soared. The price of fuel, food, energy and transport have all been rising strongly with the effect that almost everyone feels worse off than they did. Furthermore, Government attempts to rein in its own deficit have inevitably led to rises in taxation. It is not just the middle that feels squeezed: everyone does.
It is inevitable in this context that ambitions to cut child poverty will be thwarted since rising income is vital to achieving them and that is exactly what will not be available.
So what can governments do? Some people would argue that the first thing politicians should do is stop making the sort of election promises they cannot fulfil. On this view, the standard electoral promise of making things better for us all ad infinitum is always, ultimately a fraud. It may work for a while but it cannot always be fulfilled. In particular, it’s argued, the promise to provide perpetual, sustained economic growth – or, in popular terms, to 'end boom and bust' – needs to be exposed for the false prospectus it is.
Open economies such as ours, it’s argued, always operate in cycles and always will. The result is that although there will be periods of rapid growth when we all feel more prosperous, there will also be periods of stagnation (or worse) when we’ll feel the pinch. Democratic politicians need to grow up and acknowledge this fact when they talk to the voters. They need to spell out too, the critics add, that when a recession is caused by a banking crisis such as the current one, then recovery is always much slower.
Of course such hard-headed realism does not mean that politicians must admit to utter powerlessness and claim they can offer nothing at all to hard-pressed voters. There's an argument to be had (George Osborne and Ed Balls are having it) about the degree to which government can mitigate a recession by increasing its own borrowing. But few people believe the current decline in our living standards could have been avoided altogether by governments trying to spend their way out of the problem.
Some argue that the British people are facing a peculiarly tight squeeze because governments of both parties have allowed the British economy to become too dependent on its financial services sector. The argument here is that the result is bound to be greater poverty for us all when that sector takes a hit on the scale it has in recent years. The solution is for governments to ‘rebalance’ the economy, so that we depend less on finance and more on manufacturing. But that’s for the long-term.
In the short term, can governments do more to ease the problem of increasing poverty? The current Government argues that it’s doing what it can to lighten the financial burden of ordinary families in the face of rising prices. It suspended the fuel duty escalator in the light of rising oil prices; it’s raising the tax thresholds for standard-rate taxpayers; and it is introducing a radical new system of universal benefits which should help to offset the rise in child poverty, albeit not until 2014.
Critics, though, say it is not doing enough to help ordinary families in these difficult times. Utility companies, they claim, are being allowed to rip us all off with soaring gas and electricity bills which the regulators seem impotent to moderate. The Government itself has added to the cost of living by bunging up VAT. And it is forcing on commuters excessive increases in train fares in order to finance the railways.
Whatever the rights and wrongs of these measures, one thing seems clear. The squeeze on all our living standards, the fact that we must all face increasing hardship rather than increasing prosperity over the coming years, exposes the emptiness of many of the claims politicians make about what they can do and how they can do it. In the last parliament, politicians of all parties passed a law to eradicate child poverty. But Robert Joyce of the IFS says: 'It is inconceivable in any state of the world that any policy could reduce poverty sufficiently.'
So perhaps politicians should just stop promising what they cannot conceivably achieve. That might make our politics a bit more grown up. But, equally, it might make voters even more disillusioned with politicians than they already seem to be. Is the fault actually ours? Do we demand the promise of ever-better times even when we know it can’t possibly be delivered?
What’s your view?
- How badly are you feeling the pinch?
- How do the prospects look for you and your family over the next few years?
- Has the severe squeeze on living standards come as a surprise to you or did you always expect it?
- Do you think politicians over-promise or not? What do you make of the promise to end child poverty?
- Do you think the Government could do more or not to moderate the rise in the cost of living, especially with regard to petrol prices, utility bills and train fares?
- And what single thing would you like the Government to do to ease your own financial difficulties in the coming years?