The coalition’s cost of living sleight of hand

The transparent attempt by the government to selectively reinterpret the data so as to downplay the so-called 'cost of living crisis' is frankly rather alarming.

The coalition is being rather disingenuous, aren’t they?

Splashed across several of the newspapers this morning was the extraordinary claim, emanating from government, that living standards, employment and pay are all rising as economic recovery takes hold.

“Official analysis showed that wages rose faster than inflation for 90 per cent of people last year,” as the Daily Mail put it.

The economy has certainly returned to growth recently after three years of stagnation, but are living standards really on the rise?

No, is the short answer.

Firstly, the data the government has used for their claim is highly selective, as some commentators have pointed out. It excludes mortgage interest payments, which are a huge added cost for some families, especially in the south east of England, and fails to take changes to the benefits system into account, which include changes to in-work benefits, tax credits and child benefit.

According to the Institute for Fiscal Studies (IFS), it’s those on low incomes who are now feeling the squeeze because of changes to social security payments and who will continue to be the hardest hit as benefit reforms take effect in the next few years. There is a plethora of anecdotal evidence suggesting as much this already: half a million people received three days emergency food assistance from a Trussell Trust food bank between April and December 2013, for example.

The Annual Survey of Hours and Earnings (ASHE), which is what the government is basing its calculations on, also excludes those who are self-employed in its calculation, and they make up 14 per cent (and growing) of the workforce.

And finally, as the economist Jonathan Portes has pointed out, coalition calculations are also based on weekly rather than annual earnings – whereas tax liabilities are calculated annually. They aren’t comparing like with like.

In summary, the latest Office for National Statistics (ONS) figures showing that total pay growth is still just 0.9 per cent – half the level of inflation which is 2 per cent – are still the best figures to go by.

Inflation 3-JPEG

As Paul Johnson, director of the IFS, put it on the Today programme earlier this morning:

“If you’re looking at the whole of household income, a lot of this information is a little bit out of date. We’ve done our own work looking at where we think things will be going and it does look pretty clear that, as I said, by 2015 incomes won’t have recovered their 2010 or 2008 levels.”

The transparent attempt by the government to selectively reinterpret the data in order to downplay the so-called ‘cost of living crisis’ is frankly rather alarming.

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