Autumn Statement: Economy

Baroness Donaghy Excerpts

Tuesday 29th November 2016 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, I want to talk about the low-paid and those who are probably not managing at all. The Resolution Foundation has said that,

“in the UK twice as many workers are low paid as in some other advanced economies. We pay the price not only in lower living standards but in increased spending on benefits for working families”.

The Conservative-led coalition Government and the Conservative Government from 2015 made enormous capital out of their long-term economic plan and the need for austerity. We had it every day from the Dispatch Box. Now, the long-term economic plan is dead, and the national debt is rising and set to be 90% of GDP by next year. The Government cut 1 million public service jobs. They cut public service pensions. They slashed benefits. They attacked trade unions and their ability to collectively bargain. The long-term economic plan is now dead and the debt has doubled. Instead of investing in a high-wage, highly skilled economy, the Government are continuing their race to the bottom, where low wages, low skills, insecurity and an overreliance on the service sector are the order of the day.

The headlines make much of the national living wage, which is due to be increased to £7.50 by April 2017 for those aged 25 and over. The OBR thinks that it will be £8.80 in 2020—already lower than the £9 forecast of the March Budget. On the other hand, the Low Pay Commission’s independent forecast is that the national living wage will be £8.60 in 2020—40p per hour lower than the March forecast a mere eight months ago. These figures may have a small, favourable impact on someone who works full-time, but they do nothing for part-time or seasonal workers. The Social Mobility Commission has stated that only 10% of those on a low wage ever escape to a higher wage.

The Government have tinkered with fuel duty, a more favourable tapering of benefits and banning upfront letting fees, but the Resolution Foundation calculates that these cover only 7% of the losses that families face with £12 billion of welfare cuts. The poorest third of households will lose income, and higher inflation will make them lose even more. Perhaps our low-wage economy explains in part our poor productivity record—the 35% difference between ours and Germany’s has already been cited several times. I accept that the employment rate has grown in the last six years, but the 2.7 million increase in jobs should be offset by the 1 million jobs lost in the public services. The cap on pay increases in the public services will mean that yet again it is public service workers who are subsidising their own services in health, education and the civil service.

Household saving as a proportion of disposable income has fallen from 11.5% in 2010 to 5.1% now. The level of personal debt is very worrying; it has passed £180 billion, not counting mortgages—more than the NHS costs. Personal debt is growing at the fastest rate in 10 years, and most of those who seek help are young and in work. If there are salary rises and economic growth then this will not become a crisis, but all the forecasts point the other way.

Although there has been real pay growth this year, which gives a small amount of help to the low-paid, women, young people and part-time workers, it is in the context of still being 6.8% below 2009 earnings and still a relatively small sum of money. The top 1% of full-time earners in Britain started at £60 an hour in 2013 figures. Someone paid at the minimum wage would have to work 24 hours a day for 830 days in order to match that figure. We are not talking about “just about managing” here; we are talking about not managing at all.

The proposed improvement to the universal credit taper means that taxpayers in receipt of universal credit will keep 25p of each pound earned instead of 24p. A taxpayer working an additional eight hours at the national living wage in 2020 would be better off by only £1, according to the Resolution Foundation, while a non-taxpayer would be better off by £1.40. These small gains will be more than offset by the cuts in the value of work allowances and the freeze on working-age benefits until April 2020.

Government policies are failing our elderly and our young people. Many Conservatives have called on the Chancellor to provide more money for social care for the elderly, describing the underfunding as having a devastating impact on individuals and the NHS. This has the greatest impact on those without a cushion of savings to allow them some choices. It also has the greatest impact on women, who either will be deprived of their present basic needs this winter or will be doing what they can to support their elderly relatives. Nearly 100 care homes have closed in the last six months. A cross-party group of local government leaders has said:

“The social care crisis is real and it is happening right now. The government cannot ignore it any longer if we are to truly have a society that works for everyone”.

As for young people, ONS figures reveal that there are now a total of 857,000 16 to 24 year-olds not in education, training or employment, an increase of 0.2% since last year.

I want to raise two issues with the Government, one where they have done nothing and one where they have done too much. The 5 million self-employed, many of whom bump along the bottom of the earnings league, are as varied as hill farmers, actors and writers, along with hundreds of other professions. Their typical earnings are actually lower than 20 years ago, according to the Resolution Foundation. Sometimes they need state support when times are hard. The chasm between HMRC and the DWP could not be more obvious; they have failed completely to set up a system that works for the self-employed who are in need, and make completely unrealistic assumptions about annual earnings by the self-employed. My plea is for the Government to look at this again. Will the Minister agree to take it back and look at it? People who are doing their best to manage deserve support. Government inaction does not help the self-employed.

The second issue, where the Government have done too much—people might be a bit surprised by my raising this—is insurance premium tax, which has been increased from 10% to 12%, gathering in £6 billion a year—a nice little earner. This has not received publicity in the same way as has, say, fuel duty, but the costs are passed on to the consumer.

The question is: at what stage will the poorer consumer opt out? One million cars on the road are uninsured and one in four homes has no contents insurance. We will all be picking up the cost of this increase. Will the Minister give an assessment of the proportion of people who might opt out of taking out insurance policies because of increased costs? If he cannot, will he publish details of how the £6 billion will be spent?

Finally, and in summary, leaving the lowest earners without hope or protection will turn people away from our democratic system. It brought it home to me when I watched an American blue-collar worker being interviewed about why he had voted for Donald Trump against what he saw as the Washington elite. The interviewer said to him: “Apparently, it was the uneducated people who voted for Donald Trump”. He replied: “I may not be college educated but I know BS when I see it”. Let us beware that our words of wisdom are not regarded as BS.