With employment and GDP on the rise, the government must still tackle the unfairness of inequalities within generations
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What's the fairest way of dividing UK public spending? Photograph: Felicity Cloake
Good news! The economy grew again in the last three months – and by 1% too, which is more than City pundits predicted. It may include a post-Jubilee bounce and an Olympic flourish, but every little helps when a country feels stuck in the economic doldrums. Having been absurdly overconfident in the boom years, Britain then swung too far the other way.
Here's hoping for a modest return of confidence that will encourage those with money to invest (and there are plenty of them) to start doing so. It's the only thing to do to sustain the fragile recovery. But what we're having to cope with right now is how to carve up the small national cake the worst recession in 70 or so years has bequeathed us. The papers are full of it today. It's painful stuff.
After the protracted double-dip recession the cake – as measured by GDP – is still over 4% smaller than it was before the banking crisis became serious in mid-2008; 0.4% smaller than when Labour left office in 2010. A PricewaterhouseCoopers survey for today's Times suggests that, if pre-crisis growth levels had continued, GDP would have been 12.8% higher – £200bn more to make £1.7trn in total – and incomes on average £1,800 higher.
Which isn't really telling us much we didn't know. In any case, it didn't happen and the more interesting question is how much of the much-vaunted, finance-driven boom was built on unsustainable funny money, a credit boom and inflated asset values. Quite a bit, as owners of negative equity homes can confirm.
We heard last week that employment is up – to record levels – and that unemployment is also down (it doesn't always happen that way) which is good, of course, though some of the jobs are part-time, insecure and poorly paid. It's generally better to be in work than not. But fairness matters as well as economic efficiency and there is plenty of evidence around today of persistent maldistribution.
Along with other papers, the Guardian reports that pensioner incomes have grown faster than other household incomes in the past 30 years, but also – this bit is important – that the inequalities within generations are as acute as between the older and younger generations.
In other words, well-to-do pensioners with defined, final-salary pensions (a dwindling proportion to be sure) and their state benefits intact – winter fuel allowance, bus passes and the rest – are often pretty comfortable. They're the people the cruise liner literature is directed at, those in the top 20% of pensioner couples with an average £42,380 per annum.
Those in the bottom quintile – the lowest 20% – are on £11,492 (the average being £17,700) closer to half the UK average household income than was the case in the 1970s, when pay rises were more buoyant for those in work than is the case today. Single women tend to be worse off, according to data from the Office for National Statistics (ONS).
As the Guardian reports, Ashley Seager of the Intergenerational Foundation (he's an ex-colleague) points out, today's young people face a more uncertain future, likely to work longer for smaller pensions than their parents or grandchildren. The FT's version of this story speaks of a "jinxed generation", those in the 20s who are in danger of missing out on good jobs, pensions and affordable housing – owned or rented.
I have a hunch that something will happen to rebalance this intergenerational tension, either by making everyone worse off or by easing the debt burdens on the young. Inflation is the most obvious candidate – though it delivers pretty rough justice of its own.
On these problems below hovers the dark cloud of tuition fees, over the income-generating calculations are much disputed. As the coalition scrambles around for plausible ways of making up for lost sources of income – all those taxes from the 100,000 well-paid jobs lost in financial services – it is trying to squeeze council tax payments out of the poorest for the first time.
As with student costs the default rates predicted by critics are higher than those posted by optimists in Whitehall. But – as with the OAPs – the differences within generations are also stark. Most will muddle through, as people usually do, others will not. Sandra Laville's graphic account today of the Victoria station stabbing trial – it happened in 2010, not in the 2011 riots — is made all the bleaker because until their frenzied moment of madness most of those now convicted had not been in trouble. They had prospects, now dashed.
Enter stage right, Iain Duncan Smith, the work and pensions secretary. He's making a speech in Cambridge today where he is invoking the memory of Lord Beveridge – along with Keynes, the great Liberal inspiration behind the postwar welfare state and expansionary economy – to justify his assertion that welfare can never be seen as a bottomless pit.
IDS is targeting all sorts of sensitive issues in his welfare reforms: capping all benefits around £25,000, capping housing benefit and tying upratings to the lower CPI rather than RPI, which includes housing costs ( ie ending double counting). He wants to stop the automatic assumption that young people who leave home can get housing benefit to sustain a separate existence they can't afford on their own income and to cap child benefit (which is being taken away from higher income households, another ticking time bomb for the coalition), so that the very poorest can't assume the state will pay for large families.
It sounds harsh and will prove to be so in some cases. But most people plan their lives – and families — according to what they can afford, says the work and pensions secretary. Only the rich and the poorest have large families nowadays. Why should the majority who don't have them fund those who do?
But most poor children live in families which work but for poor pay, replies the poverty lobby. Our universal credit system – IDS's big idea – is intended to help them, he counters. No one uses expressions like the "deserving poor" but that's clearly what he means. Those 4.5 million people who have been left to exist on benefits – sometimes for generations — need help to get back into whatever work is out there, sometimes with a prod.
I doubt that all IDS's wheezes are going to work in practice. Some people tell me the IT is not up to delivering what he and his team want. But listening to him earnestly making his case as a social active Catholic of a familiar European type I find it hard to typecast him as a brute, simply grinding the faces of the poor.
" It's about fairness," as well as about saving money, fairness to those who work and pay their taxes, he keeps saying. In harsh times the public mood is becoming harsher. But we will need a lot of 3rd quarter GDP figures of 1% and more before it again becomes easier to carve the national cake in ways that are both fair and sustainable.
