Saturday, 3 December 2011
Oh, this is going to hurt. A lot.
One of the most depressing, eye-watering, head-in-hands and indeed terrifying facts to emerge from last week's economic policy debacle is the fact that we're all about to feel a lot poorer. And I mean a lot.
Take a look at the chart above (worked out from Institute of Fiscal Studies figures). It's the rise or fall in average disposable household income over the next few years, expressed in per cent terms, using forecasts from the spring and from last week.
The first thing that jumps out is that, on this count as on so many others, the numbers just got much worse. Real incomes rose a bit more than we thought last year, but they're going to fall quickly this year and next, before starting to rise in a paltry way we won't even feel in 2013 and 2014. As growth hopes fade with every new official report, so do future incomes.
In fact, the 'average' household (and yes, I know that's a construct that doesn't really exist) will be no richer in 2015/16. This has just never happened before. Economic historians such as Jim Tomlinson rightly point out that we've had the brakes slammed on before after periods of prosperity - most notably, in the mid-1970s, when real household disposable income fell by two per cent between 1974 and 1977.
But nothing on this scale - a near-five per cent fall between 2009 and 2012 - has happened before. Certainly not since the Great Depression, and probably not since the 1870s and 1880s. We're basically in uncharted waters for a modern, developed, 'progressive' and dynamic society. Everyone's going to have to tighten their belts in a way that neither they, nor their parents or grandparents, can remember. We're in uncharted waters.
The IFS does point out that the downward revisions to household income made by the OBR are mostly to non-labour incomes - profits, for instance. And that's likely to weigh most heavily inside the richest households, which of course can take relatively more of the burden.
But that's only because the new figures on investments and profits are so much worse than they were before. Figures for wage income increases are still scarily low - it's just that they were already grim.
Trust me, this is going to hurt. And it's going to hurt a lot.