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Credit Crunch Anniversary: Why Pay Is A 'Long Way' From Recovering And How Brexit Is Making It Worse

'The bills are going up and our income’s going down.'

09/08/2017 07:25 | Updated 09 August 2017

Firefighter Mark Hunt has seen his pay stagnate, his National Insurance and pension contributions rise and the cost of nearly everything in his life rise even further in the decade since the financial crisis began. It’s forced him to make drastic lifestyle changes.

“I don’t drink anymore and one of the factors is because of the cost of socialising,” Hunt, a 52-year-old who works in Plymouth says. “I don’t take my kids to the pictures. It’s too ridiculous now, the price of that. I’ve had to adjust to do other things for my family... It makes a massive impact on what we can actually do.”

Hunt, who has two grown children and two young step-children with his current partner, says the rise in his bills has been “massive”.

Mark Hunt

He calculates that his take-home pay now is roughly the same as in 2008, which, thanks to inflation, means he really earns far less. “The bills are going up and our income’s going down,” he says.

Ten years since the beginning of the biggest economic crisis in decades, British workers’ wages are still hurting from it.

The Credit Crunch, which began 10 years ago on Wednesday, was the start of a huge economic downturn that derailed the trend of pay rising more than inflation in Britain. The crisis left people’s wages stagnating, as costs rose. In 2010, the Coalition Government capped public sector pay rises, ensuring their salaries would rise slower than inflation.

Between August 2007 and June 2017, prices rose 24%, according to the CPIH which measures the price of consumer goods and housing costs.

Britain’s economic prospects since the crisis have been mixed and more politicised than ever, with Brexit advocates and opponents both citing signs of economic success or failure as evidence of Brexit boosting or damaging the country since the referendum last June.

But the real terms fall in wages has been almost unique to Britain and, economists have told HuffPost UK, Brexit is making it worse. 

A London School of Economics report in June showed that Britain was one of just three out of 28 countries that saw wages fall in real terms between 2007 and 2015.

The only country where wages fell more was Greece, which has suffered economic catastrophe in the years since the crisis.

LSE CEP
The LSE used OECD figures to show how wages had fared across the developed world and found only Greece had done worse than the UK

Experts say the Brexit referendum’s impact on the pound has fuelled inflation, hitting real-terms wages more. 

Jonathan Cribbe, a senior research economist at The Institute of Fiscal Studies, told HuffPost UK that Brexit ended pay’s “modest recovery” from the damage the financial crisis brought.

“The Great Recession and its aftermath led to substantial falls in employees’ earnings,” he said.

“Average earnings had fallen 9% by 2013-14, since when there has been a modest recovery in pay. By 2016, earnings were still around 5% below pre-crisis levels. However, the fall in sterling following the EU referendum has pushed up inflation, meaning that earnings are currently falling once again.

“This is all a long way from the 1.8% annual real growth in pay seen in the decade prior to the recession.”

IFS
This IFS graph shows that, how much higher employees' average pay would be if the pre-recession trend had continued

But the earnings have fared differently in different sectors of the economy.

The Office for National Statistics’ most recent annual survey of pay paints a picture of the disparities in wage growth.  

People working in the “electricity, steam and air conditioning supply” sector saw their average earnings rise by just £300 between 2008 and 2016, an increase of just 1% and a fraction of what inflation has been in that time.

By contrast, those working in finance or insurance saw their average earnings rise from £32,855 to £38,613, an increase of 17.5%.

ONS
The Office for National Statistics' most recent annual survey of wages breaks down how pay has fared in broad categories of employment. The data predates the Brexit vote.

But this data predates the Brexit vote and its impact on inflation.

In April, the think tank Resolution Foundation reviewed more recent, short-term ONS data and warned that pay was now falling in real terms for 40% of British workers.

The worst hit were people engaged in ‘Professional, Scientific & Technical Activities’ - a broad category that would include doctors and lawyers - saw their pay fall 2.6% in the three months to February. 

“Britain’s brief pay recovery has come to an end,” Stephen Clarke, an analyst at the foundation said. “Well over a third of the workforce are experiencing shrinking pay packets... Many more will join them in the coming months as inflation continues to rise.”

Clarke told HuffPost UK that, though the National Living Wage had helped raise low earners’ income, the squeeze on pay was “unprecedented”. 

He said the pound losing value - such as during the early throes of the financial crisis in 2008 or since the Brexit vote - was something British workers were particularly vulnerable to.

The UK workforce is less unionised and more flexible and, as such, less able to take collective action when prices rise and bargain for higher pay, he said.

“At the moment it does seem British workers are shouldering the pain of that devaluation but without demanding higher wages to offset it,” he added. 

Public sector workers tend to be more heavily unionised than their private sector counterparts but the Government’s public sector pay cap, which has limited them to no more than 1% pay rises for the last seven years, has prevented the public sector from bartering for pay that keeps pace with inflation.

Clarke said public sector workers were set to be “particularly worse off” if the cap remained in place until 2020.

Mark Hunt estimates that, without the cap, his pay would be 10% higher. He has been in the same role at the same fire station for 25 years but says his responsibilities have expanded, which means “extra training, time and stress”.

“Everywhere in my life at the moment seems to be: ’We want more out of you but you’re going to get less money,” he said.

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