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Snugglybear

Fall In Wages Could Be 20% More Than Estimated

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From the Grauniad http://www.theguardian.com/business/2014/jul/09/average-wages-fallen-further-britain-thinktank-claims

Now I know it gives the BoE an excuse to keep interest rates low. However, it remains that case that lots of the population have less to spend on discretionary items, with their incomes reducing (or stagnating) and outgoings like utility bills increasing.

Average wages in Britain have fallen further than official figures show after a huge shift into low-paid self-employment since the financial crash, according to a report by a leading thinktank.

The fall in wages could be 20% greater than currently estimated across the whole workforce once Britain's 4.5 million self-employed people are included in pay figures, said the Resolution Foundation.

A real-terms fall of 10% in average wages since 2008 would increase to more than 12% if a 27% fall in self-employed incomes is taken into account.

Before the Bank of England's decision on interest rates at its monthly meeting, the thinktank said the exclusion of pay figures for the self-employed gave a skewed picture of the health of the UK's labour market.

Officials on the Bank's monetary policy committee, which sets interest rates, are understood to be concerned that the exclusion of self-employed incomes from official figures hampers their efforts to gauge when to increase the cost of credit.

Laura Gardiner, a senior analyst at the Resolution Foundation and the author of the paper, said official figures used by the Bank and other policymakers gave "a picture that's incomplete at best and sometimes misleading".

She said: "What we know about earnings is central to our understanding of the recovery and the timing of interest rate rises so it's crucial that we equip ourselves with the best possible wage measure." More than 700,000 people have declared themselves self-employed since 2008, bringing the total number of people who work for themselves to 4.5 million or one in seven of the total.

Over the same period only 260,000 workers have been added to the ranks of the employed on a net basis, said the report.

The thinktank believes wage levels were underestimated in the immediate aftermath of the financial crash as self-employed people maintained healthier incomes than employees on average. But once the recession was under way and newly unemployed workers switched to self-employment, usually to take on part-time roles, average wages fell.

Changes in the self-employed workforce – with more women and more workers from lower-paid sectors – are also likely to have had an effect.

"It's also the case that the self-employed have greater flexibility to respond to lower demand by making ever deeper cuts to their earnings," she said.

Resolution said the effect was similar whether the median or mean calculation of wages was used.

Resolution Foundation boss Gavin Kelly said the Office for National Statistics had a "lopsided approach" to measuring the health of the labour market.

While self-employment is counted when calculating the number of new jobs in the economy, the incomes of self-employed people are excluded, he said.

The situation is of growing concern to policymakers who want to understand the strength of the recovery and its effect on living standards. The Bank's monetary policy committee is expected to raise interest rates before the end of 2014 despite concerns among business groups and anti-poverty campaigners that wages remain well below their peak and pay awards remain weak.

The headline and copy of this article were corrected on Wednesday 9 July 2014 as they stated that the Resolution Foundation claimed wages could be 20% lower than currently estimated

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TAX CREDITS.

Most parents (60%+) have left low to middle paying jobs to work 16h and get there money topped up by Gordon Brown's vote-for-me scheme.

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TAX CREDITS.

Most parents (60%+) have left low to middle paying jobs to work 16h and get there money topped up by Gordon Brown's vote-for-me scheme.

Yep, why work when you can have a leisure life and not work. The tax credit system have created massive market distortions. Still at least the BoE have the money to pay for it.

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Interesting to muse on where the tax rises or spending cuts will come after the next election.The 'grow our way out of the problem' approach seems to not be yielding progress at the rate anticipated, to put it mildly.

Edited by Joan of The Tower

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TAX CREDITS.

Most parents (60%+) have left low to middle paying jobs to work 16h and get there money topped up by Gordon Brown's vote-for-me scheme.

Is that all parents? Or mostly mothers? (Who might well have gone part-time anyway, given the cost of child care.)

And there are still the people who didn't leave their jobs, but lost them, and are doing odds and sods as self-employed because they can't find employment. How many of them have kids young enough to attract tax credits? (Anecdotally, not the handful I know in this situation - they're middle-age with kids over 18.)

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Its parents - be they single or a couple. The tax credit system does not care.

If you are a couple you can split the burden of 16h by working 8h each.

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TAX CREDITS.

Most parents (60%+) have left low to middle paying jobs to work 16h and get there money topped up by Gordon Brown's vote-for-me scheme.

Haven't heard of any.

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Interesting to muse on where the tax rises or spending cuts will come after the next election.The 'grow our way out of the problem' approach seems to not be yielding progress at the rate anticipated, to put it mildly.

As they've deficit spent to maintain the current system the debt servicing costs are constantly increasing so cutting spending merely releases money for service costs so the cuts are going to have to huge.

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Ths is why the welfare bill keeps going up even though IDS promised "reform".

Its as simple as this.If you have 2 children where i live you get the same income working 16 hours in the local shop / self employed as you do in THE BEST PAID factory withing 20 miles working 40 hours on nightshifts.More than 2 children it moves into even bigger money.

Its also the reason why productivity isnt going up and the BOE are scratching their heads over it.

Self employed tax credits are now the defacto choice as it gets you all the tax credits,council tax benefit and HB without signing on or the jobcentre.

IDSs big plan with UC was to get people on 16 hours onto conditionality and into the workfare system.Now UC is dead expect massive changes to in work benefits after the next election.

The government had an open goal for welfare reform but its been a 100% failure.

Edited by durhamborn

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Its parents - be they single or a couple. The tax credit system does not care.

If you are a couple you can split the burden of 16h by working 8h each.

Thought it was 24hrs for couple parents with one of them has to be 16 hours, the other 8 hrs

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Thought it was 24hrs for couple parents with one of them has to be 16 hours, the other 8 hrs

Thats right it does.16 hours is the single parent rule.A lot of couples claim as single though as there is no difference in the payouts.

It doesnt matter on the self employed rule as everyone puts down 31-40 hours even if doing 1 hour.That gets you the 30+ hours bonus in tax credits.There are no checks at all.

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Child credit should be limited to two children. Why does anyone need more than two children? It's not like we have high child mortality or you need them to work down the mine to put food on the table.

It's ironic that some people might be having children to get more benefits.

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Slaves don't get paid. But they do get housing benefit food benefit and clothing benefit. By giving each slave family enough benefits to live and no more this maximizes the amount the slave masters get.

The 1% are the slave masters. Labour is more right wing than the Tory's.

A fair days pay for a fair days work is what I would like to see.

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Haven't heard of any.

Neither have I, but I know plenty of people who can't work more than 25 hours a week at Asda's because of Asda's policies and thus claim working and child tax credit.

Spyguy and others should direct their anger at the PRIVATE corporations who pay such low wages and thus create reliance on the state.

Edited by 1929crash

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Ths is why the welfare bill keeps going up even though IDS promised "reform".

Its as simple as this.If you have 2 children where i live you get the same income working 16 hours in the local shop / self employed as you do in THE BEST PAID factory withing 20 miles working 40 hours on nightshifts.More than 2 children it moves into even bigger money.

Its also the reason why productivity isnt going up and the BOE are scratching their heads over it.

Self employed tax credits are now the defacto choice as it gets you all the tax credits,council tax benefit and HB without signing on or the jobcentre.

IDSs big plan with UC was to get people on 16 hours onto conditionality and into the workfare system.Now UC is dead expect massive changes to in work benefits after the next election.

The government had an open goal for welfare reform but its been a 100% failure.

The Tax Credit bill has hardly changed for the past 4 years - it's stuck at just under £30 billion. Is Osborne fiddling the figures?

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Thats right it does.16 hours is the single parent rule.A lot of couples claim as single though as there is no difference in the payouts.

It doesnt matter on the self employed rule as everyone puts down 31-40 hours even if doing 1 hour.That gets you the 30+ hours bonus in tax credits.There are no checks at all.

From what i have seen checks are the last thing they want to do the jobcenter`s are encouraging/forcing claimants to do the above

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The Tax Credit bill has hardly changed for the past 4 years - it's stuck at just under £30 billion. Is Osborne fiddling the figures?

Alternatively you could say the income limit for child tax credits has been lowered and it's generally been are harder to claim if you have decent work but the bill has not fallen.

Could indicate this trend to more lower income families.

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Neither have I, but I know plenty of people who can't work more than 25 hours a week at Asda's because of Asda's policies and thus claim working and child tax credit.

Spyguy and others should direct their anger at the PRIVATE corporations who pay such low wages and thus create reliance on the state.

Know where you are coming from but it`s a bit of a chicken and egg situation.... was it low wages that led to working tax credits or was it working tax credits that caused low wages ? after all how did the supermarket workers live before working tax credits

Looking at the restricted hours they are definitely gaming the system

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The Tax Credit bill has hardly changed for the past 4 years - it's stuck at just under £30 billion.

Jesus Christ. The equivalent to half the defence budget is spent on this???

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Alternatively you could say the income limit for child tax credits has been lowered and it's generally been are harder to claim if you have decent work but the bill has not fallen.

Could indicate this trend to more lower income families.

I don't know enough about the changes - I thought they were pretty small though - durhamborn will know - but the claimant numbers also seem to be have been pretty steady once you cut out the changes - there certainly doesn't seem to be the massive spike that is often mentioned on here

Anyway below is a post of mine from April which gives the costs in billions.

I've just been checking the Tax Credits figures for the past few years. There doesn't seem to have been much of an increase in the Tax Credits bill. It seems to have been steady at just over £29 billion for the past three or four years. If people were being induced onto Tax Credits wouldn't the amounts have increased?

The first figure is 2010-2011. Was there a change in Osborne's June 2010 budget which made a small cut to one element of Tax Credits?

28,511 29,233 29,077 29,066 28,538

https://www.gov.uk/g...budget-2014.xls

EDIT: figures above are nominal - these are real terms:

30,684 30,765 30,251 29,706 28,538

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The changes to tax credits are only around the margins.They froze working tax credit rates for 3 years and now have limited child tax credit and working tax credit rates to 1% increases a year.By freezing the allowable earnings threshold at £6400 this means any pay rises above 1% see a lower tax credit payment.

Therefore there has been a very small cut compared to inflation and about level with average earnings.

The tax credit bill wont go up much in this scenario simply due to the fact its so huge anyway.People roll off the back end as people roll on the front end.

The big increase though is in HB.Due to the way it works now per extra child.Most of the increase in HB has been to part time tax credit claims.

The best way to cut tax credits is by lowering that allowable earnings amount and limiting child tax credit to 2 children,or even better replacing with a family tax credit.They could make it slightly more generous than for 1 child now but it doesnt increase with extra children.Or they could increase the clawback rate as cutting the allowable earnings is much easier.

After the next election however they do it i reckon they will make changes so a couple with 2 children see all tax credits means tested away at NMW x2.

Edited by durhamborn

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Child credit should be limited to two children. Why does anyone need more than two children? It's not like we have high child mortality or you need them to work down the mine to put food on the table.

It's ironic that some people might be having children to get more benefits.

You don't need to have children to claim tax credits.....techically speaking they are not a credit, you can earn more credits than have paid in income tax.......would the jobs be there if business didn't rely on state/tax payers subsidy to top-up low wages by the way of credits, housing and council tax benefits.......more money for shareholders, ceos and creditors? ;)

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