Martin Flanagan: Running to stand still amid austerity

The squeeze on wages and households' financial health has intensified.

'The squeeze on household finances is worse than previously thought,' writes Martin Flanagan. Picture: John Devlin

Just 24 hours after we learnt that inflation is running at 2.9 per cent, latest official figures showed that average earnings rose 2.1 per cent in the year to April, down by 0.2 per cent on the previous month.

Meanwhile, UK employment has reached a record high. Almost 32 million people are in work, 372,000 more than a year ago and the highest total since records began in 1971.

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Unemployment fell 50,000 to 1.53 million in the quarter to April, the lowest in a decade. Surely there is some link between stagnant earnings and surging employment. The more people in work, the less need for employers to incentivise, and so earnings just toddle along against the unhelpful backdrop to staff wages bargaining of a slowing economy, politics apparently gone a bit crazy and the omnipresent Brexit cloud.

The latest earnings data shows that, if anything, the squeeze on household finances is worse than previously thought. After inflation, average earnings in the latest three month period fell 0.6 per cent year-on-year. Many in society are therefore running hard to stand still in terms of the cost of living after seven years of austerity. That is depressing. And consumers are getting the message.

They may have run up credit card bills throughout the financial crisis, but Visa recently confirmed that spending on credit cards fell 0.8 per cent in the latest 12-month period.

We all knew we had to strap in for a rough ride after the crash and recession. But the ride has gone on far longer than many of us ever dreamt, and, like kids, some of us asking “when do we get there”?

Battling against the flow

The timing is not exactly felicitous. Thames Water paid its international investors £100 million in dividends shortly before it was fined a record £20 million for polluting the River Thames with 1.4 billion litres of raw sewage and had failed to hit leak targets – which in the water industry is akin to punctuality in the trains industry.

Thames Water can afford the divi because it turned an underlying annual profit of circa £600m, if well down on the £742m it made in the previous year. But it does not exude public relations sensitivity.