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One of David Cameron's key themes in his speech to the Conservative Party conference was that Labour has "made the poorest poorer", "left youth unemployment higher" and "made inequality greater". How fair are these accusations?
We reported earlier this year that, until 2007-08, the latest year for which we have data, the third term of this Government has seen a rise in income inequality, and a fall in the income of the poorest fifth of the population, justifying Cameron's claims. But Labour's record over their entire term in office is slightly different. Cameron's claim that income inequality has risen is still true over this longer period: income inequality was slightly higher in 2007-08 than in 1996-97. However, since 1996-97, there has been positive income growth, after allowing for inflation, at almost every part of the income distribution except amongst the poorest 3 per cent of the population. It is, therefore, technically true that those with the very lowest incomes now have lower incomes than in 1996-97, but we have argued that difficulties in recording income amongst some groups means that those with the lowest reported incomes can often have very high living standards . So the fall in income for those with the very lowest recorded incomes is probably not, therefore, a good guide to what has actually happened to the poorest in society.
How do overall trends in poverty and inequality compare with those observed under the last period of Conservative government between 1979 and 1997? As the figure below shows, income inequality rose substantially during the 1980s, dwarfing the small increase under Labour to date. And the incomes of the poorest 2 per cent of the population were lower in 1996-97 than they were in 1979, similar to what has happened under Labour. As can be seen in our annual report on poverty and inequality and our on-line inequality data resource, there was also a large rise in relative poverty during the 1980s, which compares with a small fall under Labour to date (although relative poverty amongst working-age adults without children has risen since 1997-98). Furthermore, we have found that direct tax and benefit changes made by the previous Conservative governments acted to increase income inequality, whereas those made by since 1997-98 have benefitted the poor by more than the rich.
Turning to youth unemployment, Cameron is correct to point out that youth unemployment was higher over this summer than any period since 1992, the start of official data. We have argued that the rise in youth unemployment during this recession is no different from what happened during the previous two. However, the level of unemployment is highly affected by the state of the economy, and the unemployment rate for 18 - 24 year olds was no higher before the current recession than when Labour came to power.
So it is fair to say that youth unemployment and income inequality have risen under Labour, and that, on a very narrow, and potentially uninformative, measure, the incomes of households with the lowest incomes are now lower than they were in 1996-97. But, although the performance of the last Conservative government is not necessarily a guide to a potential future administration, the record on youth unemployment was no better, and on poverty and inequality considerably worse, in the Thatcher and Major administrations than under Blair and Brown.
The Gini coefficient, 1979 to 2007-08 (GB)
Note: The Gini coefficient has been calculated using incomes before housing costs have been deducted. Source: Authors' calculations using Family Expenditure Survey and Family Resources Survey, various years. Taken from Figure 3.7 of http://www.ifs.org.uk/comms/c109.pdf.
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Cutting the deficit: three years down, five to go?
The UK is in the fourth year of a planned eight-year fiscal tightening. Following further announcements made in Budget 2013, this fiscal consolidation is now forecast to total £143 billion by 2017–18. The UK is intending the fourth largest fiscal consolidation among the 29 advanced economies for which comparable data are available. By the end of this financial year, half of the total consolidation is expected to have been implemented. However, within this tax increases and cuts to investment spending have been relatively front-loaded, while cuts to welfare spending and other non-investment spending have been relatively back-loaded.
The March Budget forecast that borrowing would fall by £0.1 billion from £121.0 billion in 2011–12 to £120.9 billion in 2012–13. On Tuesday, the Office for National Statistics is due to release its first estimate of public sector net borrowing in March 2013 and, therefore, for the whole of 2012–13. Borrowing could easily end up being higher or lower than it was in the previous year, either due to backwards revisions, the uncertainty inherent in forecasting borrowing even a month in advance, or both. However, whether borrowing is slightly up or down in cash terms is economically irrelevant. Either way, the bigger picture is that having fallen by roughly a quarter between 2009–10 and 2011–12, borrowing is forecast to be broadly constant through to 2013–14.
Women working in their sixties: why have employment rates been rising?
Employment rates through the recession have been remarkably robust, with today’s ONS figures showing employment remaining close to 30 million. The young have experienced historically low employment rates and high unemployment rates but the employment rate of women aged 60 to 64 has increased as fast since 2010 as it did during the 2000s. An important explanation is the gradual increase in the state pension age for women since 2010, which has led to more older women being in paid work. Without this policy change, the employment rate for 60 to 64 year women would have been broadly flat since 2010.