Recession (Standards of Living)

Iain McKenzie Excerpts

Tuesday 2nd July 2013 Westminster Hall

[Mr Jim Cunningham (Coventry South) (Lab)]

I think this is the first time you have chaired an Adjournment debate that I have secured, Mr Walker. I am pleased to have been able to do so. As politicians, it is easy to find ourselves speaking about statistics and general trends, but it is important that we take stock and reflect on what it is like to live in our country. What sort of lives are people living? What sort of hardships are they suffering? We have to put ourselves in the position of the poorest and most vulnerable in our society to remind ourselves how much more work needs to be done. We should judge our society on how we treat the worst-off, not on how we treat our millionaires, and we are failing that test.

A key issue that I am keen to stress is that monthly expenses have been bloated by debt repayments and rising transport and fuel costs, leaving families with less spending power. For the fourth consecutive quarter, monthly expenditure by UK families has grown, with current typical outgoings up by 3% since August 2012 and by 22% since November 2011. The rise in living costs has been clearly visible over the past 12 months. Since 2008, the consumer prices index has risen by 17%, but other measures suggest that inflation over that period has been much greater. The minimum income standard used by the Joseph Rowntree Foundation indicates that the cost of a standard basket of goods and services has increased by 25%.

Based on those figures, the minimum earnings required to secure an adequate standard of living would be £16,850 for a single person, £19,400 for a working couple and £25,600 for a lone parent. All those are well above the salary of a job that pays the national minimum wage, and they are dangerously close to the average income level in the UK. Although it is true that the average income in the UK has increased in recent years, those figures show that the increase has been accompanied by a disproportionate rise in the cost of crucial commodities. The obvious effect is that standards of living are falling, as people cannot purchase as much of a commodity as previously, meaning that less is spent on luxury items, personal items and leisure goods. The biggest declines in the percentage of people spending on a certain items between November 2011 and January 2013 involve furniture, appliances, clothing, sports equipment, make-up and the motor industry. I am concerned about the broader impact on the economy, as British industry finds that demand in the consumer base is low.

[Mr Iain McKenzie (Inverclyde) (Lab)]

I congratulate my hon. Friend on securing this important debate. Does he agree that pressures on families result not only from the rising cost of food and fuel, but from the fact that most families up and down the country are taking an average £1,200 reduction in their salaries?

[Mr Cunningham]

I am outlining the consequences of the reduction to which my hon. Friend refers, and I want to look more closely at some of the rising living costs.

The most basic expenditure to affect living standards is surely food. Despite the growth in the popularity of own-brand food labels and budget supermarkets during the recession, outgoings on food shopping are still rising. Inflation of 3.13% means that a typical family now spends £234 more on annual food bills than they did in November 2011, which puts significantly more pressure on the earnings required to secure an adequate standard of living for the whole family.

An inability to respond to that pressure has left families with an unacceptable standard of living. There is evidence of that across the country, including in my constituency and surrounding areas. Research has shown that about one in five people in the west midlands have to skip meals and go without food to feed their family. Some 70% of families who are suffering from food poverty have to rely on food supplied by schools in the form of free school meals, breakfast clubs and other school clubs. As a result, more than a quarter of families suffering from food poverty are unable to provide all the meals for their children during school holidays. I am sure that we all agree that that situation is unacceptable. If we judge our society on the basis of the situation faced by the worst-off, it is clear that something needs to be done to improve the ability of families to provide meals for their children without having to go without food themselves.

Another significant section of expenditure is on travel. Average rail fares increased by 5.9% in January 2013, combined with inflation of 4.96%. Expenditure on everyday travel has grown more than any other costs since November 2011. The typical UK traveller spends £341 more every year, and the fact that there was a further average price rise in January 2013 means that such rises are likely to continue.

I have raised my objections to high-speed rail elsewhere, so I will not get into that today. After a previous Secretary of State for Transport, the right hon. Member for Runnymede and Weybridge (Mr Hammond), described high-speed rail as “a rich man’s toy”, I have not been assured that we will not see transport costs rise even further to pay for high-speed rail. Travel costs do not appear to be a real concern for the Government.

The increasing prices applied by utility providers are putting significant pressure on households. The resulting energy bills have drained an extra £221 from their budgets every year since this Government came to power. Such increases have caused the cost of living crisis that afflicts millions of families across this country, reducing their ability to secure an adequate standard of living. Those issues are compounded by the fact that, according to a study by the Institute for Public Policy Research, 5 million homes are overcharged by energy suppliers. Yet the Government have backed “business as usual” in the energy market, with energy companies having paid out £7 billion to shareholders, which is a clear refusal to challenge the practices, pricing and structures in the energy market that are causing such difficulties for families and individuals alike.

I believe that it is our responsibility to ensure that energy bills are kept at a manageable level for families. When Labour left office, there were 1.75 million fewer households living in fuel poverty, including 500,000 fewer vulnerable households, because our policies—such as winter fuel allowances, cold weather payments and improvements in energy efficiency through the Warm Front scheme and tough requirements on energy companies —ensured that they could spend the amounts of money required to secure an adequate standard of living, rather than having to overspend on energy bills.

Housing expenditure, and specifically rent, makes up a considerable portion of families’ overall expenditure. As a result, the cost of rent can have a huge impact on a family’s standard of living. The greater the proportion of total expenditure taken by rent, the less the family’s ability to spend in areas that would secure it an adequate standard of living.

[Mr Cunningham]

I agree with my hon. Friend, and I have just outlined the consequences of that.

If the issue about rent is taken as a reflection of the overall situation across society, there is serious cause for concern. On top of that, the Prime Minister promised 100,000 new homes under the NewBuy scheme, but there were just 2,000 by May 2013. Indeed, home ownership has fallen from 64% in November 2011 to 59% in January 2013, which is the result of families increasingly shifting to rented properties. The increasing trend towards renting means that 25% of UK families are now in rented accommodation, which is a significant rise from 19% in November 2011. Meanwhile, rent in the social housing sector has gone up by 26%, and the number of families using social housing, including council housing, has increased from 11% to 15% in January 2013.

According to the debt charity StepChange, the combination of those factors has caused the proportion of its clients with rent arrears to increase significantly— from 5.6% in 2010 to 8.6% by the end of 2012. I would describe rent prices as one of the most pressing problems affecting living standards today, and I believe that it needs to be urgently addressed.

StepChange’s findings about rent arrears bring me to another key element of expenditure that is rising—debt. Between November 2011 and January 2013, average debt repayments increased by almost £20 a month or £240 a year. That is accompanied by a dramatic rise in the number of families seeking help for utility bills and with council tax and rent arrears.

Although overall debt levels have decreased, households are now struggling with priority debts that many were previously able to meet. More than a third of those seeking help from StepChange are in arrears on at least one household bill. I find it particularly striking that clients over 60 have the highest overall levels of arrears and single parents have the highest levels of rent, council tax and water arrears. The sad result is that 78% of StepChange’s clients felt that debt problems had undermined their self-confidence and their ability to support both themselves and their family.

There are plenty of other examples. According to research by Consumer Focus, the number of households in debt to their electricity supplier has increased by more than 25% to 850,000, and the number in debt to their gas supplier has risen by 20% to more than 700,000. We all know how debt can be extremely destructive: being in debt can affect someone’s quality of life and financial stability. That matter requires urgent Government attention.

That leads me to the related issue of payday loans, which, thankfully, has been debated a good deal recently, so I will speak only briefly on it. Last year, there was a staggering rise in the number of people seeking help with payday loans. More than twice as many people—360,413—contacted StepChange for help with payday loan problems in 2012 than during the previous year. The data show that, on average, a client’s payday loan debt is up more than £400 on last year, and now exceeds their monthly income.

[Mr McKenzie]

My hon. Friend is being generous with his time. Like me, does he have an increasing number of constituents coming to his surgery who have got into debt? Does he also see an increasing number of shops on his high street offering payday loans?

[Mr Cunningham]

Like every other MP, I have increasing numbers of people coming to see me about debt. My hon. Friend is right to say that we are seeing more and more of those shops opening up on our high streets but, more importantly, nothing is being done about the television advertising that is leading people up the garden path. Payday loans can have a profoundly negative impact on people’s finances, but the problem is wide as well as deep. In March 2013, a compliance review by the Office of Fair Trading estimated that up to 8.2 million payday loans were made in 2011-12, and that a third either could not be paid back on time or could not be paid back at all. We are talking about some 2.7 million loans that could not be paid back on time, which demonstrates the difficulty and the strain felt by the public with regard to payday loans, and that pressure affects people’s standard of living. I fully support any action the Government take to tackle that problem.

Let me comment now on the backdrop of public sector pay freezes. In the spending review last week, the Chancellor announced yet another cap on public sector pay. He said wage rises would be limited to an average of up to 1% in 2015-16, thereby extending the clampdown by a further year. He also announced plans to seek savings by reforming the system of pay progression in the public sector. The incomes of millions of teachers, nurses, firefighters, council workers and civil servants will be squeezed even further in future.

Furthermore, the long-established and simple principle of pay progression based on experience looks to be the next target. That will be far more complex and potentially damaging to services. I am particularly concerned about the disproportionate impact that the measure will have on equality. Those who will suffer the most from such a freeze in increments will be low-paid women, who tend to have shorter service and not to have reached the full rate for the job. Given the sheer numbers of public sector workers affected by the pay squeeze, the effect on the economy cannot be ignored. Each public sector worker who suffers a continued pay freeze, combined with the rising cost of living, will have a much squeezed budget indeed. If we limit the spending power of such a large sector of the country’s work force that will be sorely felt in other industries.

The Government’s cuts are being felt in many other areas. However, they are perhaps most keenly felt in local government. Local authority services can have a significant impact on people’s lives, and they are being hit very hard by the cuts. In the spending review last week, the Chancellor confirmed that a further 10% in local government funding will be cut. Coventry city council has already lost £24 million of Government grant funding in the last three years and will lose a further £19 million next year. Last week’s announcement made it clear that councils will lose a further £18 million in resources. This year’s budget means that the council can spend £200 less on each resident than it could three years ago. I know that the council is working hard to minimise the impact of such cuts on front-line services, but however hard it works, the cuts will be felt by those who need help the most, and that is the case up and down the country.

No discussion of current living standards would be complete without reference to the bedroom tax. It has been discussed at length in the House, so I do not wish to dwell on the matter now. The Government estimated that 660,000 claimants will be affected by the removal of the spare room subsidy in the social rented sector, and the average loss in benefit is £14 per week. Those affected include 60,000 working-age housing benefit claimants living in the social rented sector in the west midlands at the time of its introduction in 2013-14.

The Government say that if people do not want to face the housing benefit cut, they can simply move into a smaller property, but where are those properties? There are simply not enough smaller homes available in the housing market. Tens of thousands of people throughout England are being forced to suffer a cut in housing benefit because they are unable to downsize. Like many other MPs, I have heard greatly distressing stories from constituents about how they are being hurt by the bedroom tax. I want to make it clear that I am extremely saddened by the tax and very much hope that the Government will review it in future. We should take every opportunity to make the Government aware of the hardship that they are putting many people through as a result of the under-occupancy penalty.

With children spending almost seven hours a day at school, the quality of the school environment has, without doubt, a key impact on their standard of living. In May 2012, the Government announced that work would begin immediately on the priority school building programme, which was welcome. However, of the 261 schools promised, only one has been started. Although the completion of that programme would undoubtedly improve the quality of the school environment for children, delays stand as a considerable barrier to progress on securing a better standard of living for children in our society. Perhaps children’s standard of living could be better secured and enhanced by investing more realistically, and in other ways, in schools.

Finally, let us consider for a moment what should happen to people who come into contact with the law. Unfortunately, that is something that happens to many people during the course of their life and, often they are totally unprepared. Equality before the law is fundamental to our society. Quite simply, we do not want to live in a society in which the rich can win legal disputes by hiring lawyers, and poor people lose because they have to represent themselves. The Government’s cuts to legal aid threaten that basic equality. Funding has been removed for private family law such as divorce and custody battles; personal injury and some clinical negligence cases; some employment and education law; immigration where the person is not detained; and some debt, housing and benefit issues.

Access to justice through judicial review will be restricted, as lawyers will be more reluctant to take on such cases due to the threat of not receiving payment should the case not get past the permission stage. That also restricts consumer choice for the public. The focus on the quantity of cases, rather than the quality, will lead to more miscarriages of justice, as providers will become motivated by case volume and efficiency, rather than the right to see justice served correctly. There is a good chance that the quality of legal service provided will deteriorate, as the lower fixed fees paid to lawyers under the new proposals cause them to focus on the quantity of cases that they take on, rather than the quality of each case. I am raising the issue of legal aid in the context of living standards because I see treatment before the law and access to justice as an integral part of our quality of life.