When I was on the BBC’s Property Watch series a month or so ago, I spent time both on and off screen talking to the first-time buyers being followed by the programme.
One spoke at length about the horrors of high house prices and his problems getting a mortgage. We all sympathised: after all, house prices are too high, and it is tough to get a mortgage.
But when I sat down to discuss his situation, I found that neither of these things were his real problem. The trouble was that he earned – for what sounded like a full-time job – just £12,000 a year. No wonder he was finding it hard to get a mortgage. And he’s far from alone. The UK minimum wage is £5.73. Work a 40-hour week, 52 weeks a year and that will earn you £11,914.40 a year.
Shocking isn’t it? The credit bubble has long drawn attention away from the pathetically low level of wages – and painfully slow rate of growth in average earnings – across Britain. As long as almost anyone could get a mortgage, and the low-paid could supplement their incomes with wallets full of credit cards, and the strong pound and the rise of Chinese manufacturing meant ongoing product price deflation, low pay remained a non-issue. It shouldn’t stay that way.
There are a million points that could be made on this. But here are two. First, low wages are very costly for the taxpayer. It is barely possible for one person to live on £12,000, and not really possible to raise a family on it. So the taxpayer, via the benefits system, ends up subsidising employees of the likes of Asda and McDonald’s (effectively subsidising their profits). That doesn’t seem right.
But perhaps more crucial is the fact that a nation of low earners, outside of a credit bubble, is not a nation of consumers.
Big firms have spent the last decade or so slashing costs, which globalisation has made easy. Immigration has cut the cost of low-end jobs in Britain, while outsourcing to the likes of India and China has at least halved the cost of as many skilled jobs. Why pay manufacturing wages in Britain when you can pay them in China? That’s been nice for margins and for shareholders. But what if, post-credit bubble, it now means the same firms have destroyed the ability of much of their target audience to consume? Not so nice.
There’s been much talk recently of how the UK economy has stabilised. Perhaps it has. But even if so, it’s hard to see how it can resume real growth when both the government and the general population are out of cash; when there are few skilled jobs on offer; when the minimum wage doesn’t pay enough for even a minimal lifestyle; and when nearly 17% of 18-24 year olds have no work at all. Perhaps Britain isn’t so much stable as stagnant?