Walking the walk on backing low and middle income households

Manifestos matter. Not so much because they change the results of elections (they don’t). They matter both because they do determine much of what parties do when they actually win, and because they tell you a lot about where a party stands at a given point in time – what they see the big challenges facing a country are and what they’d do about it.

This election is, we are told, all about Brexit. Except it shouldn’t be. Yes there are huge questions to be answered over the next five years about the terms of our exit from the EU and nature of our future relationship, from cash to trade and migration. But of more immediate impact to many families is a simply disastrous outlook for living standards – their family budgets matters more to them than talk of Article 50, and those budgets look set for a truly terrible few years. Real earnings are now falling, as wages rise more slowly than prices, incomes looks set to stagnate as our employment boom peters out, and big benefits cuts risk turning a period of flat living standards for all into the first significant rise in inequality since Margaret Thatcher was in Downing Street. Some of these challenges are related to Brexit, such as the rising cost of imports, but far from all of them are.

Politicians raising their sights to the challenges of our time should have this problem in their sights. And after all, we know Theresa May cares about families who are just about managing and Jeremy Corbyn cares deeply about inequality. But it looks increasingly like no party is putting this threat to low and middle income families living standards centre stage.

Labour’s leaked draft manifesto includes a host of major policy proposals – from abolishing tuition fees, to renationalising our railways and scrapping increases in state pension age. Reasonable people will disagree on the desirability of these proposals, but they are big changes with big price tags attached. In stark contrast, when it comes to the huge benefit cuts for the low and middle income families the Labour Party exists to represent, the draft manifesto merely commits to “review” some of these cuts. For families in the bottom third of the income distribution we are talking about changes that would cost them an average of almost £1,000 a year.

A Labour Party that has money to spend on anything in its manifesto shouldn’t be reviewing these policies, it should be trumpeting plans to reverse them as its first act. For a party founded to represent the interests of working people this isn’t an optional extra. Hopefully by the time the draft document is turned into a final manifesto this puzzling omission will have been corrected.

Some have argued that Labour’s plans for a £10 an hour minimum wage by 2020 would compensate losers from these benefit cuts. It is certainly far higher than the £8.75 for workers aged 25 and over currently on the cards (which in reality could be more like £8.70 given current slow wage growth).

Leaving aside for a second the (very serious) debate about whether such a high minimum wage would risk negative employment and potential inflation effects, would it cancel out the living standards squeeze that millions of families are set to face? In short, no. This is principally because, as we have explained before, different people are affected by the benefit cuts than would gain from the higher minimum wage. As the chart below shows, middle income families are the main winners from a higher minimum wage, while the bottom third of households would still expect to see major income falls in the years ahead.

A worker on the minimum wage with two kids would get a welcome £570 pay boost by 2020 but they’d still be over £1,000 a year worse off after the cuts in support through Universal Credit.

Labour’s omission of what should be a key plank of their manifesto is all the more worrying because it risks letting the Conservative leadership off the hook on the key issue where their very welcome rhetoric on standing up for ordinary working people is undermined by policy decisions that do the opposite. These policies were inherited by Theresa May and Philip Hammond from their predecessors, and changing tack would be desirable, feasible and politically sensible. Unfortunately they have already missed the chance to change course twice – in the Autumn Statement and Spring Budget. Third time lucky is all we can hope for in their imminent manifesto.

Half way through this election campaign we risk having both main political parties failing to put front and centre the huge threat to the living standards of low and middle income families that the coming years represent. In the few days left as manifesto launches approach, let’s hope they think again.