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Austerity - Truth or Myth?

10th Nov 2017
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I was curious with all the media reports and demonstrations, what the facts were behind claims of austerity in the public sector.  I promised myself not to mention any political parties and to stick to figures published by the Office of National Staistics and HMRC, when writing this blog.

The Consumer Prices Index in April 2010 was 89.2 and in April 2017 it was 102.9, an increase of 15.4%.  The Retail Prices Index moved from 222.8 to 270.6 for the same dates, an increase of 21.5%.  Either or both of these indexes should be the base for determining whether austerity is a reality.

In April 2010, the National Minimum Wage stood at £5.93 per hour, for those aged over 21.  Assuming a 40 hour week, this would have led to gross pay of £12334.  The personal allowance was £6475 and Employee's NI kicked in at £5720.  Income Tax was at 20% and Employee's NI was 11%, so take home pay was £10434.

In April 2017, the national living wage had pushed the National Minimum Wage, for those aged over 25, up to £7.50 per hour, which made annual earnings £15600 for a 40 hour week.  The personal allowance increased to £11500 and Employee's NI is paid over £8164 at 12%, which yielded net pay of £13888.  This is 33.1% higher for those on low incomes over the seven year period.

In April 2010, the average wage in the public sector was £459 per week and by April 2017, it had increased to £507 per week, up by 10.5%, but net pay on a 40 hour week increased from £18393 per annum to £21207 per annum over this period, because of changes in the rates and allowances detailed above.  This is an increase of 15.3% and is close to the change in the Consumer Prices index.

In the private sector, the average wage lagged behind the public sector in April 2010 at £405 per week and by April 2017 it had increased to £465 per week, an increase of 14.8%.  When take home pay is calculated, net pay in the private sector increased from £16456 to £19722 over the same period, up by 19.9%, closer to the Retail Prices index.

In April 2010, the average take home pay for someone working in the public sector was 11.8% higher than in the private sector and by April 2017 this gap had narrowed to 7.5%.

Of course, top level statistics and national averages, hide a welter of individual issues, but the top level has to be used to set the general direction of the economy.  My own conclusions from the above are that it was right to:

1. Increase the take home pay of the lowest paid, many of whom fell back on benefits to top up their income, so this is less of a burden on the economy than at first glance.

2. To hold down public sector pay to narrow the gap with the private sector, when the private sector has also had pensions hit hard.

As to the question I posed, my conclusion is that overall on a National average basis Austerity is a Myth.  National statistics hide many variations, so the figures are close enough that for certain groups of workers, with varying pay levels, there is room for Austerity being the Truth in those sectors.  Given what we have been through as a country over this period, what this exercise shows is that net incomes have held up remarkably well, whatever the sector.  I leave it to others to make the political points.




Replies (2)

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By Rammstein1
10th Nov 2017 14:10

The public sector also never take their final salary pensions into account and in this day and age, they are worth a fortune.

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By raybackler
13th Nov 2017 21:21

Totally agree!

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