This chart shows how the income distribution has shifted over the last four years. Most of the increase in employee numbers has come from lower wage jobs. Although the number of employees has increased, there are fewer people earning over the equivalent of £30,000 than there were in 2010.
These figures are based on ASHE numbers so they don’t include the self-employed. If this level of detail about self-employed earnings were available, the chart would be even more skewed towards the lower end.
The OBR expects wage growth to return next year although, as the Resolution Foundation pointed out, it has been saying that next year will be the year of the pay rise since 2010.
It must be right this time though. Economic growth of 3 percent must surely feed through into higher wages at some point. Put it this way, if it doesn’t, there is even more wrong with our economy than we thought.
But the projected wage growth may not be enough to repair the tax revenues. The tax problem is “very serious” says the FT’s Chris Giles:
So concerned is the OBR about the prospects for revenues that it has reduced the 2018-19 forecast of exchequer receipts by £25.1bn, a reduction of 3.2 per cent.
The OBR doesn’t think it will be enough to stop us getting into more debt either. Pay might rise, it says, but consumption costs will rise by more.
[T]he acceleration in consumption in 2013 and 2014 was still financed mainly by lower saving, rather than stronger income growth.
The OBR expects this to continue and, together with rising housing costs, to lead to a steady growth in households’ gross debt to income ratio.
If the OBR is right, then, much of the economic growth over the second half of this decade will be based on debt fuelled consumer spending. The low pay of the early 2010s will be replaced by slightly higher pay and a lot more personal debt.
What could possibly go wrong?