Small pay rise, big debt rise

As promised, there was a lot more discussion about the labour market in last week’s Economic and fiscal outlook from the OBR.

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.

Screen Shot 2014-12-05 at 10.51.58

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.

Screen Shot 2014-12-10 at 17.36.01

It comments:

[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.

Screen Shot 2014-12-09 at 16.34.02By 2018, it reckons the household debt to income ratio will be higher than it was at its pre recession peak.

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?

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8 Responses to Small pay rise, big debt rise

  1. Jeffery Davies says:

    With carney in the bank george outside and rtu ids fiddling the figures isnt it strange
    nobody can work out whots going on jeff3

  2. SK says:

    FT Alphaville had a good post yesterday about Canadian debt..

    My question, is what is the purpose of the Bank of England ? Surely they should discourage such buildup of debt since it will make our economy unable to raise rates.

    We are really missing the synchronisation between monetary and fiscal policies. We currently have a very loose monetary policy which overprices assets (and pushes people into debt) while at the same time the fiscal policy also subsidises assets through HTB/SDLT removal/ Tax allowances. This combination is what leads people into more debt. It needs to stop.

  3. So finance capital lends the money to finance the purchase of the goods and services produced by industrial capital ? No need to pay wages to those pesky workers !.

    Job’s a good ‘un. Triples all round!

    Happy Christmas from Britain’s boardrooms.

  4. Cerberos says:

    Right;…real value wages decrease….and consumer activity increases….so standards of living must go down as all income goes on increasingly expensive essential consumer items.
    Thus creating a potential monopoly or price fixing syndicate for supermarkets and energy companies, and the housing market.
    Individual citizens taxation is channelled back to the wealthy through government contracts and outsourcing, rather than investment in services.
    So check cabinet and ministerial family investment portfolios…..and then understand why the tens of billions of pounds saved by cutting welfare, public sector jobs and public sector wages hasn’t resulted in one penny being paid off government debt, and the deficit is still increasing.
    Wealth is being extracted from the majority and channelled to the elite wealthy, and the “deficit” and debt is the silver bullet that justifies it and ensures public compliance.

    The deliberate policy is to have the distribution of wealth back in line with what it was around about 1850;
    “The rich man in his castle and the poor man at his gate”.. working hard for him but remaining in dire poverty.

    And our elected politicians sell out to ensure themselves a place among the rich and secretly side with them.

  5. ChrisA says:

    Why are the socialists not happy with this result? It looks like the perfect result for them – wages for the rich have fallen since 2010 and risen for the poor.

  6. Cerberos says:

    I don’t think you understand the graph ; you have inverted what it is showing

    There are fewer PEOPLE earning in the over £45k bracket now than in 2010; but you are reading it as if the people who do earn over £45 have not got as big rises as the lower income brackets..

    Equally there are more PEOPLE earning in the lower brackets now than there were in 2010.

    So basically most people have gone down a bracket in terms of their real earnings, and there are therefore fewer in the highest bracket , but those few who ARE there have done a lot better.

    ( Not so.. ) Seemples

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