Today’s statistics from the English Housing Survey throw an interesting light on the government’s concerns. There’s a useful table that looks at owner occupiers, people in private rented properties and social renters and says what proportion of each live in homes that are at standard, 1 room above,  under-occupied and over-crowded (an issue the government keeps quiet about.) Most people in all types of tenure live in properties that are either at standard or just one bedroom above, but look at the extremes:

The first point to note is that a much higher proportion of owners than renters have homes that are “under-occupied”. The same applies to the absolute levels too: they account for 88 per cent of under-occupied homes.

But the other point is the gradient for over-crowding: the real scandal isn’t that social tenants are under-occupying their flats and houses, it’s that they are far more likely than other families to live in over-crowded homes. It says something about the government’s priorities that they can ignore this and obsess about the thought that someone is getting more bedrooms than they deserve.

The BLS provides tables for the USA and nine other countries America compares itself with, one of which is the UK. The most usable figures are those that translate each set of national figures into US definitions. This means they’re not quite the figures we’re used to talking about in this country, but it’s the relative position we’re interested in here, so that doesn’t matter so much. Our unemployment rate is still a little lower than America’s and Italy’s, and significantly lower than France’s:(*)

Our unemployment rate is usually higher than Japan’s, but it is a little depressing to find ourselves lagging some of the other countries so badly. What’s much more interesting, though, is how these countries have coped with the impact of the global recession on their labour markets: (*)

This table may actually paint our position in too rosy a light. America’s bigger increase in unemployment reflects the massive loss of jobs that took place in 2008 and 2009, that picture is improving very slowly and UK unemployment may rise higher than America’s:

The National Institute for Economic and Social Research’s gloomy forecast for UK unemployment suggests that that upswing at the end of the chart above is more than a blip:

the output gap will be closed only very slowly, with unemployment rising to about 9 per cent this year and remaining high throughout the forecast period. Even in 2014, it will still be over 7 per cent, compared to the OBR’s estimate that the structural unemployment rate is about 5.25 per cent. Unemployment at this elevated level for such a long period is likely to do permanent damage to the supply side of the economy, with large long-run economic costs.

On his Not the Treasury View blog, Jonathan Portes, the Institute’s Director, has drawn attention to “the largest and longest unemployment gap since WWII“. The unemployment gap is the difference between actual unemployment and structural unemployment (here labelled the ‘NAIRU’ – the non-accelerating inflation rate of unemployment):

He points out that the unemployment gap is a measure of the amount of unemployment due to macro-economic conditions:

In other words, if macroeconomic policy is broadly on track, the unemployment gap should be small; it is a measure of the number of people who are not working because macro policy isn’t either.

(Double emphasis in original.) Jonathan notes that we don’t have the high inflation that might normally explain such a gap. He draws one encouraging conclusion from it – that there is more spare capacity in the economy than is sometimes claimed, and so more room for fiscal expansion. But this also means that if we don’t do anything about cyclical unemployment it will become a huge weight of structural unemployment – the spare capacity will drain away.

In other words, if we accept a persistently high level of cyclical unemployment now, we will condemn ourselves to a persistently high level of structural unemployment in the future.

The days when Britain could lecture the rest of the world about labour market success are behind us. Austerity has not served Britain’s unemployed workers well and we are on the verge of creating a structural problem that could take a generation to solve.

(*) The BLS data stretches to the fourth quarter of 2011 for all the countries in these tables except the United Kingdom. I have used the 3rd quarter figure instead.

• A limit on the planned ‘bedroom tax’ (Brendan Barber signed this letter about this amendment in today’s Guardian);
• Protecting young people’s entitlement to contributory Employment and Support Allowance;
• Doubling the planned 12 month limit on contributory ESA;
• Excluding cancer patients altogether from this limit;
• Reversing the government’s plans to charge lone parents for using the Child Support Agency;
• Last night’s amendment – reversing planned cuts to disabled children’s benefits; and
• Excluding Child Benefit from the “benefit cap”.

These are all humane and necessary amendments. As Sue Marsh has pointed out, disabled people’s and carer’s organisations are united in opposing the Bill and it’s hard to find even individual disabled people who don’t support these amendments. Yesterday, the Children’s Commissioners for England, Scotland, Wales and Northern Ireland united to express their “deep concerns” at “the serious negative impact of the proposals in the Welfare Reform Bill on hundreds of thousands of children.” Shelter, the National Housing Federation, Homeless Link and Crisis have warned that the Bill will increase the number of homeless families. All of these amendments deserve support, but there is some uncertainty about how MPs will vote on the last of the list above – the ‘benefit cap’.

The TUC is strongly opposed to the cap (there’s a more detailed briefing on our website) because we think it is grossly unfair to children. The DWP impact assessment indicates that

67,000 households will have their benefits reduced by the policy in 2013/14 (this is roughly one per cent of the out-of-work benefit caseload) and 75,000 in 2014/15. Within these households, and in 2013/14, the number of adults affected is 90,000 and the number of children 220,000.

In other words, 71 per cent of the 310,000 individuals affected by this policy will be children.

The DCLG accepts that 20,000 families are likely to become homeless “as a result of the total benefit cap”. The Children’s Society has calculated that, “based on an equal distribution across families affected, this would mean around 27,600 adults and 82,400 children could be made homeless as a result of the cap”. That is, 75 per cent of the 110,000 individuals at risk of homelessness are children.

The average affected family will lose £93 a week; 35 per cent will lose more than £100 per week.

MPs seem to have been influenced by the fact that initial polling is showing public support for the benefit cap. Until now, media coverage has concentrated on contrasts between adults on benefits and adults in low paid jobs. If the focus of discussion shifts to the unfairness of a measure that mainly targets children opinion may well shift.

Which is strange – these figures come out every three months and previously the tabloids have had a field day with them.

Their take on these figures was encapsulated in a Daily Mail headline last July:

The shirking classes: Just 1 in 14 incapacity claimants is unfit to work

As I’ve pointed out before, these stories have ignored the fact that many claimants appeal their tests – and win. They’ve also assumed that people who withdraw their claims are afraid of being caught out in fraud, when this may merely mean that a claimant has missed an appointment or simply recovered. In today’s report, the DWP remind us that previous research they commissioned found that:

An important reason why ESA claims in this sample were withdrawn or closed before they were fully assessed was because the person recovered and either returned to work, or claimed a benefit more appropriate to their situation.

But today they simply haven’t appeared, even though there’s an ideal peg on which to hang this story. Perhaps this has something to do with the figures for the results of completed assessments:

The proportion found fit for work has been falling for some time. This chart is based on completed initial assessments of claims started in the relevant month and of course, there are quite a few claims where the assessment hasn’t been completed – a category that includes claims closed before the assessment and claims that were still in progress. If we look at the figures based on the date the assessments were completed we can avoid this complication and the trends are even more noticeable:

Employment and Support Allowance is paid at two rates – there’s a higher rate for people in the Support Group (generally, people with more severe impairments) and a lower rate for people in the Work Related Activity Group. If we look at completed assessments and confine ourselves to people found to be entitled to ESA, the change over time in the proportion of people assessed as in the Support Group is even more remarkable:It seems very likely that the Harrington Review reforms have had a significant impact on WCA results. The government appointed Michael Harrington to look at the WCA after disability organisations protested at the terrible mistakes being made. (In itself, this was an indication that the tabloid stories were getting the WCA results wrong.) The rate at which decisions were overturned on appeal fell from two fifths in 2009 to a third at the end of 2010. This rather supports the notion that changes in initial decision making and the first set of Harrington reforms have resulted in fewer successful appeals, though the DWP reasonably point out that the most recent figures are for November 2010 and “later figures are likely to change as more appeal cases are heard by the Tribunal Service.”

If it does turn out to be the case that the Harrington reviews have produced these changes, then the government must consider what to do about the people who failed the WCA before these changes. As Declan Gaffney has pointed out,

The implication is that thousands of ESA claimants have been wrongly denied unconditional support since October 2008 due to faulty assumptions about the number of claimants with serious work-limiting conditions on the part of DWP ministers and officials, embedded in the assessment process and the contract with Atos healthcare.

So the story behind today’s figures is that many people who claim ESA get better before their WCA, the proportion of people who are assessed as entitled to ESA is growing and, of those entitled to the benefit, the proportion put in the Support Group has been growing too. This may well be because of improvements introduced to remedy serious weaknesses and, if that is right, thousands of people may have been wrongly denied benefit or awarded it at a wrong level (if not contrary to the legislation then certainly contrary to notions of fairness).

I suppose that answers my initial query about why these figures are no longer so popular with the tabloids. (And it’s always possible that this month there were no helpful private briefings about upcoming statistics that might be good for a headline ….)

370,000 migrants on the dole

On the one hand, the paper plays up “concerns that the country has become a destination for ‘benefit tourists’”. Then, towards the end of the article, there is equal outrage at the fact that “90 percent of new jobs created in Britain over the past decade have gone to foreign -born workers.”

All those arguments where you ended up asking “are you angry because they have got jobs or because they haven’t?” It’s like being back in my twenties. It’s worth paying some attention to the methodology of the DWP reporton which this story is based: the Department has used National Insurance numbers to identify people on benefits who were non-UK nationals at the point when they registered for National Insurance numbers. The authors of the report go out of their way to highlight the fact that

these statistics do not provide a measure of non-UK nationals currently claiming benefits based on their current nationality. (Emphasis in original)

In other words, many of these claimants could well have been UK citizens for a number of years. The researchers took a random sample of 9,000 of these claimants, matched their details with Borders Agency records, and found that 54 per cent had been granted British citizenship.

And, with a bit of thought, surely most people will conclude that even the non-British citizens should have rights to benefit. Chris Grayling and Damian Greenaccept this (begrudgingly) in a comment piece also published today in the Telegraph:

There’s a natural instinct that says that no one from other countries should receive benefits at all. But if someone works and pays taxes here, it’s not unreasonable that we should help out if they fall on hard times.  But we have to have a system that is fair and transparent, and which stops people receiving money that they should not be entitled to.

But who is receiving money they should not be entitled to? In the Telegraph article you have to wait till paragraph 13 before you read:

In the majority of cases, ministers found that the migrants claiming benefits were eligible for the money. In a small sample group, details from a quarter of claimants could not be verified, while 2 per cent of them were suspected of making fraudulent claims. (My emphasis.)

Despite the Telegraph’s headline, the 371,000 claimants are not all on Jobseeker’s Allowance; the figure is for all “working age” benefits. The relevant figure for JSA is 121.7 thousand, which is less of a scary number. Claimants in this group who are on JSA are, in fact, outnumbered by disabled people:

• JSA – 121,700
• Employment and Support Allowance and incapacity benefits – 130,400
• Lone parents – 53,900
• Carers – 33,500
• Other income-related – 10,900
• Disabled 14,100
• Bereaved – 6,500

Finally, the media coverage does not highlight the fact that migrants are, in fact, substantially less likely to claim benefits than native British people:

As at February 2011, 16.6% of working age UK nationals were claiming a DWP working age benefit compared to 6.6% of working age non-UK nationals.

So, what the DWP’s research actually reveals is:

• Foreign born people are less likely to claim benefits than others.
• Most people on benefits who were foreigners when they first came here are probably British citizens now.
• Nearly all of them only claim benefits they are entitled to.
• And most of them aren’t on the dole.

I think I can live with all that.

The January labour market figures are terrible – the unemployment statistics look more and more like what we got used to in the 1980s. But, at first sight, it’s encouraging that the number of people in work went up a little. I’ve recorded a quick video to explain why this picture is misleading.

There seems to be some reason for optimism in the fact that employment also went up – admittedly, by just 18,000, but that is better than a fall.

Unfortunately, as I show in my post, the improvement in employment is largely due to increases in part-time and self-employment. The number of employees working full-time fell by 140,000. 

The increase in self-employment wouldn’t be a problem if it indicated a burst of new entrepreneurship – or was even just an increase in people living out their dream of being their own boss. But a whole series of indicators suggest that the labour market is actually very soft: the outlook for insecure workers and people looking for jobs is grim. 

That’s not to downplay the significance of the challenge to the Bill:

The Benefit Cap

The Assessment concludes that the Cap will increase child poverty and that it will lead to some children losing their homes. It “incentivises” family breakdown (because splitting into two households will increase the family’s net income) and will have a disporportionate impact on children from minority ethnic groups that tend to have larger family units. Disabled families will only be exempted if someone in the family receives Disability Living Allowance; other disabled families will make up about half of all Capped families.

Housing Benefit changes

The reforms that cut the level of HB will increase child poverty,

with associated poor health, educational and other outcomes; children losing their home as a result of it becoming unaffordable; and effects upon children of in-country migration.

Universal Credit

UC will be an improvement for some people, but there are also worries. The Children’s Commissioner highlights the fact that it will be paid in a single monthly payment; for couples, this is likely to be to a joint bank account or a nominated member of the couple. If this is not the main carer there is ample research evidence that the money is less likely to be spent on the children.

Universal Credit includes a major reduction in support for disabled children who don’t get the highest rate of DLA care component, justified on the grounds that this reform will “mirror the limited capability for work element for adults.” The Children’s Commissioner points out that 100,000 disabled children will lose £27.09 a week and

It is unclear why provision for disabled children is intended to mirror that for disabled adults since children under 16 are not expected to increase their income by finding work.

Social Fund

The Bill abolishes the Social Fund, which will be replaced by payments on account and a new system to be designed by local authorities, but with no ring-fencing and no duty on Councils to deliver this support. The Commissioner points out that many families will have no alternative but to rely on loan sharks and other “high interest credit providers”. There is a particular problem for children fleeing an abusive home with their parent or carer.

Child Maintenance

The Bill tries to encourage parents to come to make voluntary arrangements for child maintenance and the Child Maintenance and Enforcement Commission will only collect maintenance if the non-resident parent agrees or if CMEC is satisfied that they are unlikely to make payments. The Commissioner worries that this will lead to delays and non-payment and this will cause hardship for children.

The longer term

These are telling criticisms. But there’s also a couple of points made in the course of this Assessment that are a challenge to all the political parties. (The points that follow aren’t just directed at the current government, my experience was that the last government resisted them just as strongly.) These key arguments, with long-lasting significance, follow on from the Children’s Commissioner’s duty

to promote the views and interests of all children in England, in particular those whose voices are least likely to be heard, to the people who make decisions about their lives

and from the United Nations Convention on the Rights of the Child, which provides the framework for her activities.

This means that, for the first time, an official voice is addressing social security policy debates from a human rights perspective. This is an important challenge: the Assessment says that the fact that benefit levels “have for some years been consistently below the poverty line …has a serious impact on the rights of children.” Like most anti-poverty campaigners, I have argued for years that benefit levels are a breach of human rights, but the Children’s Commissioner is a statutory office and Dr Atkinson is much harder to ignore.

Even more significant is the section on benefit sanctions. At the TUC, we have argued that benefit sanctions are necessary when people break the rules, but they have to be designed after taking into account the poverty they will cause or exacerbate, especially for children. Successive Government have refused to do this.

The Children’s Commissioner takes a really radical line when she comes to the sections of the Bill increasing benefit sanctions. She notes that sanctions will cause hardship and

If hardship payments are not made; are made in the form of loans; are insufficient in quantity; or are delayed, this is likely to put children at risk of losing their home through rent arrears, and to otherwise substantially compromise their standard of living and potentially their health.

The case against sanctions is made powerfully:

A child’s independent rights to social security and to an adequate standard of living under the UNCRC should never be affected by the imposition of benefit sanctions upon his or her parent or carer … In our view, it is insufficient that sanctions will only affect the adult component of UC since withdrawal or reduction of this will have a substantial effect upon household income and therefore upon the child’s standard of living.

In addition, adds the Commissioner, benefit sanctions that lead to families losing their homes are probably contrary to article 8 of the European Convention on Human Rights.

Further, no decision to impose a benefit sanction upon a claimant with dependent children should be made without consideration of the best interests of the children as a primary consideration in order to comply with Article 3 UNCRC. (Emphasis in original)

The Assessment goes on to argue that, to meet obligations to respect children’s rights to social security and an adequate standard of living under Articles 26 and 27 of the Convention, hardship payments should be made automatically when there are children in a sanctioned family “and should be sufficient to guarantee housing affordability without the diversion of substantial amounts of living cost benefits to rent.”

In most public debates about benefits sanctions are there to be made more stringent. There have been some other interventions – Paul Gregg’s 2008 report on Realising Potential (which the current government still points to as an inspiration) called for the sanctions regime to be based on four principles, one of which would be that they should “be proportionate and not cause excessive hardship.” In 2009, Rights and Responsibilities in the Social Security System, a ‘think piece’ for the Social Security Advisory Committee by Julia Griggs and Fran Bennett, pointed to the evidence showing that sanctions do cause real hardship. But the argument that sanctions that cause children hardship break this country’s UN obligations is a new step. And it will be hard for the government to get out of this obligation by making the same sort of fuss as they have about the Human Rights Act – Dr Atkinson points out that Children’s Minister Sarah Teather has promised that the government will give due regard to United Nations Convention on the Rights of the Child when creating new policies and drafting new legislation.

Now it is up to those of us who care about child poverty – and those who care about human rights – to make sure the government engage with the arguments in the report and don’t simply re-state the justifications they’ve already given for their policies.

It isn’t just the political frisson that comes from knowing that BoJo’s submission had to be feretted out with a FoI application, it’s the fact that he criticises the plans to replace DLA with Personal Independence Payment for exactly the right reasons:

• Ending automatic awards for some groups – as the Mayor’s submission says,

Claims should be based on the needs and circumstances of the individual applying. Groups that are currently listed in the ‘automatic award section’ (Annex 1, page 37) already have to supply medical evidence satisfying specific medical criteria to receive DLA. Automatic entitlement should remain the same for these claimants.

• It looks as if the switch from DLA to PIP is more about cutting costs than about supporting disabled people -

While some reform may be necessary and some proposals are positive in terms of simplifying the benefit and reducing bureaucracy, the Mayor is concerned that if the focus of this reform is solely efficiency driven government, may fail to ensure that the needs of disabled people are adequately met and many will suffer additional hardship and isolation.

Something got lost here (isn’t it terrible when bad things happen to good sentences?) but plainly Boris has come to the same conclusion as us.

• The newspaper reports about fraud in disability benefits are extremely misleading -

Department of Work and Pensions statistics give the overall fraud rate for Disability Living Allowance as being less than 0.5%.

• It takes 3 months’ disability to qualify for DLA; with PIP that rises to 6 months -

People who have fluctuating conditions can experience difficulties in being awarded DLA. The Mayor would call for the Government to retain the three-month qualifying period as the increase to six months will mean that people with fluctuating conditions have increased difficulty meeting the qualifying period. People with fluctuating conditions face the same barriers that all disabled face in relation to higher costs of living and DLA is essential to maintain a decent quality of life.

• Most important of all, the Mayor’s submission criticises the key structural difference between Disability Living Allowance and Personal Independence Payment – the shift from three rates for the care component of the benefit to two. This will be used to cut the entitlement of people whose impairments may be less severe, but who still face high disability-related costs. And the Mayor is spot-on in explaining why this is a bad idea:

The Mayor does not support this change, as those on the lower rate care component may have additional costs as a result of their impairment but may lose their access to this benefit as part of the proposed removal under the reforms.

On issues like transport Boris Johnson gets a lot wrong, but here he makes a series of fair points (compare the TUC submission, which makes similar points, though at greater length). For more about the plans for Personal Independence Payment, have a look at the Responsible Reform report (which I posted about earlier today) and sign @patspetition to

Stop and review the cuts to benefits and services which are falling disproportionately on disabled people, their carers and families.

For decades, disabled people have been campaigning against policies that affect our lives being decided entirely by non-disabled people. Today’s report was entirely written, researched, funded, and supported by sick and disabled people, their friends and carers.

It does a sterling job of taking apart the sham of a consultation exercise that preceded the reform proposals. The consultation did not meet the government’s own code of practice and the report used the Freedom of Information Act to produce an analysis of the responses to the reforms which reveals that

• 74% of the responses to the consultation were against the plans for PIP,
• 19% had mixed views, and
• Only 7% supported it fully.

In particular, 92% opposed the plans to remove the lowest rate of benefit, which will mean that hundreds of thousands of people with less severe impairments will not get any help with the costs of disability. The report shows that the government has over-estimated the increase in DLA claims (by more than 100%) and that disabled people responding to the consultation believed that the plans for Personal Independence Payment were motivated solely by the desire to cut benefit spending.

Today, all around the country hundreds of supporters are tweeting to support lead author Sue Marsh. She has tweeted

I support the #spartacusreport

We are tweeting in response

No, I support the #spartacusreport

The Welfare Reform Bill has almost finished its passage through the House of Lords. This is our last chance to reach the Lib Dem and Crossbench peers who can stop this huge cut in its tracks.

The same European trend is visible if we confine ourselves to the period since the start of the recession. But the increase since the start of 2008 has been more marked in the United Kingdom:

There’s an even stronger contrast if we look at temporary employment. If we look at the last 14 years, the proportion of workers in temporary employment has actually fallen in the UK, but risen in Europe as a whole:

But if we just look at the period since the start of the recession, this pattern is reversed:

This country still has a high(ish) employment rate by European standards (see below) but these figures suggest part of the price workers have paid to maintain that position.

European employment rates

• Iceland 79.7
• Switzerland 79.4
• Norway 75.2
• Netherlands 74.7
• Sweden 74.5
• Denmark 73.5
• Germany 72.5
• Austria 72.1
• Finland 70.1
• United Kingdom 69.4
• Cyprus 69.0
• Czech Republic 65.7
• Portugal 64.8
• Slovenia 64.4
• Estonia 64.3
• France 64.1
• Luxembourg 63.8
• Belgium 62.5
• Latvia 61.4
• Lithuania 60.8
• Poland 59.7
• Slovakia 59.6
• Ireland 59.5
• Romania 58.8
• Spain 58.3
• Bulgaria 58.2
• Italy 57.3
• Malta 57.3
• Greece 56.4
• Hungary 55.8
• Croatia 52.3
• Turkey 49.2
• Macedonia 43.7

Other depressing news items today included the Financial Times’ survey of 83 economists’ expectations for the coming year (£) in which three times as many thought the economic outlook would deteriorate as that it would improve and Lloyds Bank’s monthly business barometer, which fell to its lowest level in three years in December.

I was particularly struck by Deloitte’s survey of finance directors. Their view of their companies’ financial prospects headed south throughout last year and is now as bad as it was at the end of 2008:

After looking at this chart, it should be no surprise that

on average they see a 54% chance of the UK suffering a ‘double dip’. Most expect the period of weakness to be prolonged, lasting for more than a year.

What we should worry about is the fact that Chief Finance Officers are drawing the obvious conclusion that this is not a good time to invest. This is depressing, because most optimistic scenarios are based on the fact that companies have plenty of cash and the hope for an investment-led boom. Well, that doesn’t look likely:

In all of these reports and surveys it’s increasingly clear that worries about the Eurozone are freezing investment decisions and depressing confidence. Deloitte quote one CFO as saying

Everyone is waiting for something very bad to happen.

I’ve been careful to make the distinction between blaming the Euro for the collapse of UK output over the past 18 months – definitely wrong – and claiming that Euro problems aren’t going to have an impact; plainly they are.

Some commentators and politicians are going to claim that the damping effect on investment and order books that we’re beginning to see now proves that none of our current mess should be blamed on the government. They’ll be wrong, but they may get away with it if the rest of us aren’t clear about the distinction between what has happened since the second half of 2010 and what seems likely to happen now.

Third, financial investors are schizophrenic about fiscal consolidation and growth.

They react positively to news of fiscal consolidation, but then react negatively later, when consolidation leads to lower growth—which it often does. Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability.

I should be clear here. Substantial fiscal consolidation is needed, and debt levels must decrease. But it should be, in the words of Angela Merkel, a marathon rather than a sprint. It will take more than two decades to return to prudent levels of debt. There is a proverb that actually applies here too: “slow and steady wins the race.”

Some journalists suggest that Blanchard has noticed something no one saw before; indeed, Blanchard’s post is about “four main lessons” learned in 2011. What a shame no-one pointed out the risk of lower growth scaring investors as much as deficits when the coalition was deciding on a harsh austerity programme.

Oh.

Well, here it is – Ten Points on Regulation, over at the TUC website. So the next time you think you’re going to get into an argument with someone who believes unemployment is all the fault of the minimum wage, you might like to have a quick look.

And if you’ve got some better arguments to make the case against de-regulation or facts and figures to illustrate it, let us know, we’ll update it in a few weeks’ time.

An important feature of this recovery relative to past ones — and a key reason why the pace of the recovery has been disappointing — is the weakness in household consumption. Consumption spending is estimated to have fallen by over 1% in the first half of this year alone.

The Bank and NMG Consulting carry out an annual survey of households’ financial positions and the latest is reported in the Quarterly Bulletin. And it’s a depressing read, even for a professional misery-guts like me:

Households reported that their income available after paying tax, housing costs, bills and loan payments had fallen, continuing the trend of the past four annual surveys. Households also reported that they had been affected by the fiscal consolidation, mainly through lower income and higher taxes, and that in response they were, for example, trying to increase their labour supply through finding a new job or working longer hours. Relative to the period before the financial crisis, more households continued to report that credit conditions were tight. Households, in aggregate, did not expect to change the amount they saved. And despite the considerable pressures on household finances, most reported levels of financial distress had not deteriorated, aided by the low interest rate environment and the forbearance shown by lenders.

48% of households said they had been hit by austerity, with just 34% “not heavily affected.” 69% expected to be affected in the future, 15% expected to be not heavily affected. 12% of households said they had had difficulty paying for their accommodation in the past 12 months; 7.5% had fallen behind with paying at least one important bill (up from 4.1% last year) and a majority of people with mortgages say they would be in trouble if interest rates went up by 3% or more. On average, households’ “monthly available income” is £46 less than it was a year ago – £552 a year. 7% said they had lost their job as a result of the government’s fiscal policies and 19% expected to be in the future.

Markit’s Household Finance Index is the latest indicator returning to levels last seen in the recession. The Index is constructed so that a score of 50 indicates no change in household finances from the previous month, while a lower score shows that things are getting worse; it’s only been running since February 2009, but I find it very useful.

• This month the Index fell from 34.6 to 34.3, the lowest level for four months; the HFI was briefly lower during the summer, but otherwise, this is the lowest level since the summer of 2009. 
• 38% of households said their finances had got worse in the last month, just 7% reported an improvement; households reported the biggest fall in their incomes from employment since March 2009.
• There was also a big increase in debt (22% of households saw an increase) and a fall in savings (33% reported this).
• 49% of households expect their finances to be worse in 12 months’ time. This part of the HFI is slightly worse than it was a year ago and significantly worse than at the end of 2009.

The squeeze on households’ spending power is, as the Bank recognises, economically significant and austerity is an important reason not just for why people feel poorer (that’s been obvious for well over a year) but for why they actually are poorer.

The fiscal challenges we face mean we need to find new ways of delivering social justice. The last Labour government made Britain a better place. I believe our progress on the NHS, schools and crime shows that. The Blair/Brown approach, with social progress resting on higher investment, was right.

But the failure of the Government’s austerity plan means that the next Labour government is likely to inherit a deficit that still needs to be reduced. So even then resources will have to be focused significantly on paying down that deficit.

And Martin Kettle’s piece in today’s Guardian about “the politics of ‘no more money’” sets out some of the political aspects very well. But, as I argued ten days ago, the scope for reducing inequality without spending more on benefits is limited. That post was mainly based on the OECD’s ground-breaking study of inequality, but there are also lessons to be learned from the last government’s efforts to eradicate child poverty.

I have been reading Richard Dickens’ article “Child Poverty in Britain: Past Lessons and Future Prospects” in the October National Institute Economic Review. The article is an excellent source for a brief description of Labour’s child poverty strategy and policies and their impacts. But the most striking element is the section that tries to evaluate the contribution of different factors to the reduction in child poverty since the late 1990s, an approach called ‘decomposition’. This produces a table showing factors that affected the changes in relative and absolute poverty between 1997/8 and 2008/9:

To read this table, look at the column for relative poverty: 26.2 per cent of children were in relative poverty in 1997/8, by 2008/9, this had fallen to 21.1 per cent. Demographic change and wage levels were pressures that would have increased child poverty, if nothing else had changed. Wage inequality lessened a little, so that helped reduced child poverty and so did changes in ‘work patterns’ (especially a reduction in the number of workless families).

The column for absolute poverty can be read in the same way.

A couple of points emerge from this. One is that getting more people into jobs had some effect on child poverty, but not a huge one. As Dickens comments,

This is disappointing, since the New Labour strategy, and now that of the coalition government, is to reduce poverty through increases in work. This strategy is likely to fail without improving the wages obtained or pay progression in these jobs.

The second point is that more than two thirds of the reduction is down to government benefits (including tax credits); Dickens calls this “the big driver of reduced child poverty.”

Before the last election, David Cameron argued that the “big governent” approach to cutting poverty, increasing tax credits and benefits for children, had failed. The coalition ‘s plan is to rely, like the last government, on “work as the best route out of poverty”, but even more so. The last government may have re-distributed by stealth, but this government is cutting benefits and reversing their initial promises to increase some benefits for children. But it seems that Cameron had, and Osborne has, this entirely wrong: it’s the money spent on redistribution that was mainly responsible. Without the tax credit and benefit increases, under Labour the number of children in relative poverty would have risen by 3.6 points instead of falling by 5.1 and the number in absolute poverty would have fallen by 3.8 points instead of 15.7.

So how will a government committed to fiscal conservatism cut inequality? Chris Dillow, taking up my earlier post, makes the important point that, internationally, there isn’t much correlation between the proportion of GDP spent by governments and how equal a country is. He suggests that we could reduce inequality by making the tax system more progressive, or by changing the institutional landscape – stronger unions, more collectivism, investment in education. But he asks how realistic this is:

Herein, I fear, lies the big challenge for the Left. Although it is technically possible to reconcile small government or fiscal conservatism with greater equality, the UK lacks the cultural underpinnings which would permit this happy combination.

In the same way, we could be fiscally conservative – indeed, we could have a smaller government – but choose to devote a higher proportion of government spending to benefits and tax credits. The most recent British Social Attitudes survey suggested that this may be a hard sell - possibly even harder than not being fiscally conservative – which, I suppose, is another way of making Chris’s point.

If we look at the industrial production indices for the Euro Area and the UK (2005 = 100) we can see that the index has been falling in this country since the start of the year. In the Euro Area the downward trend begins in the summer:

Given that manufacturing exports were supposed to be leading us back to growth in a “march of the makers”, the fact that industrial production is down on 2010 is depressing enough, the fact that it is down on 2005 is proof of how hard this country’s output has been hit.