From the TUC

Growth and Living Standards: What’s the connection?

29 Apr 2013, by in Economics, Politics

There was plenty of food for thought on offer at the Resolution Foundation this morning, as Peter Kellner, Penny Young, Stewart Wood and Danny Finkelstein debated whether the 2015 poll would be the ‘Living Standards Election’.

Kellner’s latest research for YouGov showed, perhaps unsurprisingly, that Conservative voters tend to think that fiscal responsibility is the nation’s biggest economic priority, whereas Labour voters opt for growth. Kellner concluded that this gives the Tories a potential advantage, as some growth in the next two years, even if lower than is desirable, may feed into a belief that the Coalition has delivered both objectives.

Kellner’s research was perhaps most interesting when addressing what could be done to bolster living standards. Top priority was given to lowering the price of essentials, such as food and petrol. Boosting wages scored relatively low, as did creating more jobs and increasing working hours.

Stewart Wood, of Ed Miliband’s office, argued that the economy is a composite of variables. Tracking growth and assuming that it reflects how people feel about the economy was a mistake that Gordon Brown had made and it was important not to make it again. In fact, there is a disconnect between aggregate growth and how people feel about their own living standards, he argued.

This raises a number of issues. First, the assumption that a return to growth automatically boosts Conservative chances in 2015 should be treated with some caution. This is the argument that in putting the case against austerity, Labour has given itself nowhere to go if there is an economic revival before the next election. Interestingly, Dan Corry, who used to work for Labour, took the view that there is a natural assumption to trust the Tories on the economy but that, paradoxically, if the economy is performing better that many expected, this may make people feel more inclined to take a risk with Labour. I don’t quite buy that, but if people do feel a disconnect between their own circumstances and that arbitrary thing called ‘growth’, it may lead many to wonder what, if anything, an economic upturn, as normally defined, means for them.  

Second, I am interested that people look to lower prices rather than higher wages as the solution to their living standards problem. Some years ago, I did some work for the TUC on below cost selling. This is the practice adopted by supermarkets and others to sell some basic goods, such as bread and milk, as loss leaders, to tempt shoppers through the door. Once there, those supermarkets make up the loss in the price of other goods. One consequence of this practice is that it leads to pressure on dairy farmers and bread producers to lower their prices to supermarkets, leading to low pay in those sectors. I was part of a TUC delegation that met a Labour Minister to discuss this, but we understandably didn’t get very far: ‘Vote Labour for a Higher Grocery Bill’ was never going to be an election winning slogan.

But the problem still needs to be solved. Ed Miliband has talked of ‘pre-distribution’ and his announcement at the weekend of tax breaks to encourage firms to pay the living wage is a step in the right direction.

Of course, the best way to enhance pay is to boost collective bargaining. Evidence, including from the International Labour Organisation’s Global Wage Report, demonstrates that clearly. Last week, the TUC’s Frances O’Grady delivered the Clement Attlee Memorial Lecture, in honour of Labour’s greatest Prime Minister. Writing in the Guardian to coincide with that speech, she said: “(Labour) needs to start where people are: the problems of stagnation, declining living standards and poor prospects now afflict a huge majority of the electorate – whether they tick the traditional supporter box or not”.

Frances went on to make the case for trade unions in the modern economy, including with seats on the boards of companies, as happens elsewhere in Europe (and as described in the TUC’s German Lessons report). From this morning’s Resolution Foundation seminar, we know that economic growth, vital though it is, is only part of the answer to the living standards conundrum. A fairer income distribution is also essential. For that, we need the trade union contribution.