Financial News

  • 24 January 2014, 16:53

Take-Home Pay 'Rising Faster Than Prices'

Prime Minister David Cameron has claimed the benefits of the recovering economy are now being felt, with the vast majority of people seeing a significant rise in their take-home pay.

In a counter attack on Labour's so-called cost of living crisis, the Government said workers' take-home pay was now rising faster than inflation.

According to figures released by the Treasury, nine out of 10 British workers have seen their take-home pay increase in the past year.

Nearly everyone except the richest 10% saw their take-home pay rise by at least 2.5% once tax cuts were taken into account.

This is above the Consumer Price Index inflation rate which stood at 2.4% in the year ending April 2013.

However, the statistics are being fiercely disputed by Labour, who have accused the Conservatives of being "highly selective" with their statistics and failing to "understand the cost-of-living-crisis".

Ministers claim conditions have improved most for the bottom 50% of earners with take-home pay rising three quarters faster than CPI inflation.

Though the figures take into account cuts to income tax and national insurance, they do not include cuts to benefits to people in work.

Minister of State for Skills and Enterprise Matthew Hancock MP said: ?"Of course as a consequence of the Great Recession people who work hard have been made poorer and times are tough for families as a result.

?"That's why, as part of our long-term economic plan, we are cutting taxes for hardworking people so they have more money in their pockets and are more financially secure.

"Last year, our tax cuts meant people's take home pay rose faster than prices. So while there is still a long way to go, these figures show our plan is working.

"Only by continuing to work through our long-term plan will we secure a better future for Britain."

Labour though argued that for most - real wages have fallen.

Shadow Treasury Minister Cathy Jamieson said: "The truth is that under David Cameron real wages have fallen by over 1,600 a year and analysis of IFS figures show families are on average 891 worse off as a result of tax and benefit changes since 2010.

"At the same time this government has given a huge tax cut to people earning over 150,000."

Paul Johnson, director of the Institute for Fiscal Studies think tank, said the Government's figures did not take account of benefit reductions and so did not reflect what has happened to household incomes overall.

Mr Johnson said it appeared that pay was now rising faster than inflation for most workers, but predicted that - after inflation is taken into account - incomes will remain "well below" their pre-recession levels by the time of the 2015 general election.

"There are two problems with this which one needs to take into account," he said.

"First, we have other sets of data - the Office for National Statistics publishes an average weekly earnings index. That went up quite a lot less quickly than inflation in the most recent months.

"And of course they are not taking account of reductions in things like benefits which were occurring over the time.

"So if you are looking at household incomes, that will be different from what's happened to take-home pay," he told BBC Radio.

Mr Cameron used a speech at the annual economic summit in Davos this morning to push for more job creation - especially in manufacturing.

He also said fracking and developing "cheap and predictable" energy sources could boost the economy and could help attract back to the UK jobs which had been "off-shored" to the rising economic powers of Asia.

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