Rising mortgages and food and fuel bills are bringing home the reality of Mr Osborne's failing strategy
It's all so macro, or so it might seem from the headlines. In July, the government borrowed £600m over the month to bridge the gap between what was coming in and what was going out. Economists had forecast a £2.2bn surplus. When George Osborne was riding high in February 2010, making his austerity debut as the sultan of stinge, in his Mais lecture, he described what is turning out to be his very poor national housekeeping as "tight fiscal policy, supportive monetary policy and countercyclical financial regulation".
But it's become even clearer what this means on a micro level, translated into every day language: we ordinary mortals are facing the most sustained and savage attack on our standard of living for decades, with the poorest inevitably faring the worst. But it's not just the poor. For the first time, even the once comfortable are experiencing the anxiety of how to pay the mortgage, fill the car, meet the supermarket bill.
Last Wednesday, five million households learned that their fuel bills will increase up to £100 a year because SSE, the UK's second-largest energy group, announced that its tariffs would rise in October. More will follow SSE. Ofgem, the regulator, reports that the profit margins of power companies are due to increase by almost 14%.
On the same day, Santander, Britain's second-biggest mortgage lender, announced a rise in its mortgage rate so repayments will jump by £300 a year on average from October, £700 on a £200,000 loan. Many borrowers can't go elsewhere because they have little equity. Add to that stagnating wages; rail fare and council tax increases; private rents at a peak; the ever-climbing price of essentials such as food and clothing; and the cuts to benefits that include less help with childcare costs and the assault on our standard of living is unremitting.
What's more, while the government may have the facility to borrow, that elasticity is denied many who increasingly, in this post-credit gorge period, are living with very little financial breathing space. While much attention has been paid to the disproportionate "rewards" going to the top 1% and, at the other end of the spectrum, the cost of so-called "troubled families", next to no attention is paid to the many millions of families who are barely coping. Just deserts this isn't.
Sylvia Nasar, in her riveting book, Grand Pursuit: The Story of the People Who Made Modern Economics, reminds us that Alfred Marshall, the father of modern economics, saw his trade not as an inflexible set of rules but as an "engine of analysis", always requiring adaptation and change. Osborne has so far proved resistant. Charles Dickens, in 1854, in his popular weekly Household Words, pleaded with economists to humanise their discipline. "Political economy is a mere skeleton," he wrote, "unless it has a little human covering and filling out… and a little human warmth in it."
Macroeconomics strips away the warmth and too easily builds a barrier that protects ministers from the impact of their policies on ordinary people – that's left to impotent MPs returning from their summer break to constituency surgeries. Meanwhile, the continuing paralysis of Labour's vocal cords means that much of the "filling out" comes from the invaluable work of organisations such as the Child Poverty Action Group and the Resolution Foundation whose Commission on Living Standards is due to report in the autumn.
Britain has 10.1 million working-age adults living on low to middle incomes, from about £12,000 to £30,000 per child-free couple a year. Of this group, 14% are professionals; others are in skilled trades, care, admin, managerial, secretarial and retail. On our escalator-down economy, many are also newly self-employed, working precariously on commission or underemployed, cobbling together dead-end, part-time jobs. Many are doing a day's work for less than their family can live on. A small increase in mortgage repayments or a necessity such as shoes for the new school term rends a hole in the purse that is increasingly difficult to mend.
Under Labour, according to the Office for National Statistics' research, this group and the poor were boosted by a range of benefits including working family tax credits and childcare help. Much of that is now going or gone while wage inequality is accelerating. To compare male workers at equivalent stages of their career: someone on £618 a week in 1977 was on £1,116 by 2011. In the same period, those at the bottom of the wage scale saw a minuscule rise, £262 per week to £297.
Nevertheless, we are definitely seeing growth in our economy: growth in children living in poverty – 800,000 by 2020 according to the Institute for Fiscal Studies; growth in repossessions; growth in food banks; growth in Wonga-itis, using payday loans to meet basic housing costs. The European Union says one in six people in Britain is significantly overburdened by housing costs, spending more than 40% of their income, three times more than in France. Sliding down the social mobility snake instead of climbing the ladder has an impact on housing. According to Shelter, we need 250,000 houses built a year. Instead, the government has cut support for new affordable housing by 60% and last year, only 109,000 houses were completed. Ten thousand families are permanently parked on each social housing waiting list while the average deposit on a privately rented home is £979. We are witnessing increasing numbers of capable families involuntarily moving from thriving to managing to sinking into a financial nightmare from which, even if the economy picks up, their personal recovery may take years, if it happens at all.
The coalition isn't just interested in cutting the deficit, however, it also aims to change behaviour, but whose behaviour is at fault? Universal Credit, introduced next year, is intended to "incentivise" the workless into employment. Except that the majority who will be in receipt of UC are already in a job and it is many employers who are reprehensible, sitting on billions while paying such peanuts for wages they require a state subsidy.
Osborne allegedly plans even more draconian welfare cuts in November. As many have said, it doesn't add up. Put money in the pocket of the poor and the squeezed middle, and, unlike the affluent, they spend most of it, because they must, since much of their income goes on their basic cost of living. That's good for the economy.
There are solutions. Maintain benefits; unfreeze child benefit; help with transport costs and childcare; encourage jobs with prospects; establish a national housing investment bank to boost low-cost, good-quality housing and the macro and the micro more healthily begin to link. That's because future growth and the way in which the cake is sliced isn't just about money. It's about justice and fairness too.
