Battleground 2015: Protecting our standards of living

A few weeks ago, we learnt that inflation has increased to 2.7 percent, whilst the Bank of England said that it expects inflation to exceed the three percent mark at some point this year. Meanwhile, the growth of pay has been just 1.3 percent and most social security benefits are either frozen or limited to a one percent rise over the next three years. The squeeze on living standards remains a very real issue, and the growing disparity between social security, the rate of inflation and low wage increases means that living standards are put under severe strain. This is despite growing awareness for things like the Living Wage Campaign that have sought to re-focus efforts on dignity in employment. Coupled with low overall economic growth (coasting at pretty much nil since 2010, and achieving only 0.3 percent in the last quarter) the consequences have been alarming for working people.

George Osborne’s recent Spending Review has reinforced those trends and, given the fiscal commitments he has made, the Coalition has now set the terms of debate for the 2015 election. It will be, as the Institute for Fiscal Studies claimed, an ‘austerity election’ because successive governments will have to impose further spending cuts of £23bn between 2015 and 2017. This is a contentious agenda, which will see public expenditure plunge below 40 percent of GDP – and below that of the US, Germany and Japan. Public spending will fall by over 6 percent between 2012 and 2017; in the US, it will fall by just 1.26 percent. The UK is therefore rebalancing its economy in a very drastic way in a short time period compared with other major economies. Labour must challenge this agenda. But it must also ask a basic question about its raison d’être: what is the purpose of the left in a period of austerity, in a period of low economic growth, and in a period of declining support for the welfare state?

From the mid-1990s, Labour could rely on economic growth to redistribute wealth – in other words, correct the problems caused by capitalism without dealing with the cause itself. Looking towards the horizon of 2015, this is clearly not possible from an economic perspective, nor desirable because popularity for the welfare state has waned. It means that Labour must support social justice and equality – both central to achieve fairness – in a different way. Labour can no longer focus on a large state and solely on the redistribution of wealth to achieve its goals. Things such as working tax credits have perpetuated market inequalities, where the government spends billions to essentially subsidise companies for low pay. This is one of the central reasons that we must turn towards a living wage to support people in jobs. The living wage is as much about economic equality as it is about social justice. Labour was founded on such a principle, aiming to improve social cohesion and fighting for the right for every person to have an opportunity at a good life. This was a founding aim for guild socialism, co-operatives and trade unions. We must remember that greater economic justice is not an end in itself, but the mechanism by which we can achieve a better society – a society in which we, as communities, can determine our collective fate and in which we, as individuals, can pursue our conceptions of happiness. Unfortunately, this seems so have been forgotten sometime after the Second World War, possibly somewhere amidst the creation of a bureaucratic welfare state. The Labour Party focused too much energy on correcting the faults of the capitalist economy: it focused on tidying up inequality, rather than challenging its causes.

Labour would do well to look to the principle of living standards as a central guiding force for policy. The protection of living standards is the belief that all individuals have a right to a minimum standard of living through dignity in work, good mental (as well as physical) well-being and reasonably priced public services available for all. In other words, life should be affordable and not a daily struggle for survival. The Coalition government has entirely abandoned these aims: the cost of essential goods has increased by 25 percent since 2008 without ameliorative efforts. Living standards are now at their lowest level since at least 2004-05, and the IFS has concluded that: ‘Prospects for living standards are […] bleak – further falls are likely to be followed by a weak recovery, leaving average income growth even lower in the 2010s than in the 2000s’. [1]

Labour’s alternative to austerity must be a return to the principles of a decent standard of living. Living standards resonate with people, so long as it is associated with the beliefs of dignity in work, social security based on a contributory principle, and a distribution of wealth based on just deserts. The idea of a ‘squeezed middle’, scoffed at by so many a couple of years ago, was a bold move that has since become an important reference point for debates around austerity. It requires the following commitments from Labour:

  • A minimum living wage. This, beyond anything else, will be a test for Labour. The Party must commit to the introduction of a living wage across the country. There are calls for the national minimum wage to be raised to become the living wage, which I would echo. [2]
  • Protection of basic economic rights. Calls from Conservatives suggest that austerity may cause the repeal of employment rights. Tory europhobes, too, want to repeal rights in order to create a more ‘flexible’ labour market. If anything, these need to be strengthened to ensure basic rights for workers.
  • Regulating prices. Our utility companies are hardly subject to competitive frameworks. Water companies have monopolies over certain areas, and energy companies make it difficult to switch to cheaper rates. [3] This must be challenged through a regulatory framework, coupled with a green investment strategy.
  • Social investments. For example, we need to continue to invest in education at all levels (from pre-school support to post-graduate funding). This will balance equality of opportunity as social mobility will increase, and it will also act as an incentive for further investment from businesses.
  • A strategy for growth. Social security benefits are rising because our economy is not growing. A growing economy – that is rebalanced towards sustainability, with regulative frameworks in place – has the opportunity to not only lower social security, but also to strengthen dignity in work.

Labour can be radical in its approach towards living standards. It speaks to a positive vision for what economics is for. It is an approach that moves Labour away from the falsely constructed ‘strivers versus skivers’ debate. Ultimately, this is also not about austerity. This is about using the resources we have to achieve radical outcomes for greater social justice and equal opportunities for all, without the need to necessarily increase public expenditure.

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[1] Institute for Fiscal Studies (2013) Living Standards, Poverty and Inequality in the UK: 2013, London: IFS, p.28. Available here.

[2] A living wage is important because it would ensure dignity in work for the employed, it would boost the spending power of individuals (gross earnings would be up by £6.5bn) and it would ensure a more productive workforce. Crucially, it would also allow the Treasury to achieve gross savings of £3.6bn if universally applied. See this report by the IPPR and Resolution Foundation for more details.

[3] The Power Book, presented by Caroline Flint at the last Labour Annual Conference was a step in the right direction. For more, see: Local Government Information Unit (2012) The Power Book, London: LGiU.