Ross Clark

Has Britain reached ‘Peak Wealth’?

Has Britain reached 'Peak Wealth'?
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So the year-long squeeze on real earnings is now officially over. Figures released by the ONS this morning show that average earnings in the first three months of this year were 2.9 per cent ahead of what they were in the same period of 2018, while CPI inflation was 2.7 per cent ahead. In other words, we are all, on average, 0.2 per cent better-off than we were last year. That is no great deal, it has to be said, and continues the poor run of growth in real incomes ever since the global economic crisis of a decade ago. It is unprecedented in the industrial era to have had such a long peacetime period in which the population does not really grow any richer. According to an IFS analysis, past falls in real incomes have lasted two years (1865-67), four years (1874-78), two years (1921-23) and two years (1976-77). Otherwise, Britons have been able to take it for granted that they have grown wealthier year on year.

Yet whether you want to blame austerity, low productivity, zero-hours working practices or Brexit (the latter being a little difficult, since real incomes have been struggling since well before the 2016 referendum) it is impossible to ignore a parallel development: falling unemployment. Remarkably, unemployment fell another 46,000 in the first three months of this year, taking the unemployment rate down to 4.2 per cent, the lowest since 1975. There goes another trend we thought we could take for granted until recently: that unemployment was on a long-term upward trend. When he was Chancellor in the mid 1990s, Ken Clarke opined that unemployment was becoming a structural issue, ratcheting up with every economic cycle, and he suggested there was little that governments could do about it. This now looks very wrong. We are heading back towards full employment – in spite of a low-growth economy, high net migration and the automation which we keep being told will destroy jobs.

So why? Why is unemployment so much lower now that it was, for example, in the booming late 1980s, when the economy was racing ahead on the back of rapidly-expanding consumer debt and we didn’t have large numbers of foreign workers arriving in search of work? There is the possibility that we are all more incentivised to work than we were then. I remember as a student in 1988 being able to go along to the DHSS office, sign on as unemployed for the summer vacation and enjoy £20 or so rolling into my back account every week without making any effort whatsoever to look for work. I only needed to sign on every other week, so it even allowed 13-day holidays, paid for by the taxpayer – and this in the middle of Mrs Thatcher’s supposed crackdown on benefits culture. I don’t think students would get away with that now.

The holding-down of real wages and falling unemployment are of course inter-related. People who would previously have been out of work are now in work, on relatively low wages. Their presence in the workforce is helping to drag down the average wage. So are falling or static real earnings a bit of a statistical quirk? What matters more than earnings, perhaps, is overall incomes from all sources: work, benefits, investments, the lot. Yet if you look at the ONS figures for net household income per head they, too, show little or no growth over the past decade: it was £19,858 in 2017, compared with £20,009 in 2016 – pretty much the same as it was an entire decade ago.

We might have to be prepared for more of the same. Perhaps we are simply reaching a stage at which it is harder for societies to become richer. It was relatively easy to increase wealth when we had large numbers of people working in the fields by hand – one simple invention, such as the threshing machine, had huge implications for productivity. It is not so easy squeezing out extra efficiency in an economy which is already highly-mechanised and automated. We might just have to accept that we have pretty much reached Peak Wealth.