Who gains from growth?

We have often heard governments in recent decades saying that growth is good for everyone. Never mind wasting precious resources on panaceas for the impoverished, they say, we need to pump prime business and jump-start the economy. Invest in growth, so the argument goes, and the standard of living will rise for everyone.

A report today though seems to confirm what many of us already suspected, that economic growth does not benefit everyone after all. At this delicate moment of cuts, this news is troubling for those of us who are already worried about the inequalities dividing us from our neighbours, or who are simply unlucky enough to be in the poorer half of society.

The Gardencentreshopping href="http://www.resolutionfoundation.org/publications/who-gains-growth-living-standards-2020/" target="_blank">Resolution Foundation's Who Gains from Growth? report, published today with Warwick University and the Institute for Fiscal Studies, predicts that the lowest income families in Britain stand to lose 15 per cent of their incomes by 2020. Middle-income families will also lose out in the long-term, with only the wealthy standing to gain materially from economic recovery.

all working-age households below middle income in 2020 will be worse off than those in the same position a decade earlier. A household at the bottom of the low to middle income group1 in 2008-2009 had an income of £10,600 a year. By 2020-2021, under the baseline, the income of a household in that position falls to £9,000 a year (in 2008/09 prices), a real terms decline of 15 percent. A household at the top of the low to middle income group would, in the same position, see its income drop from £23,000 per year in 2008-2009 to £22,200 in 2020-2021, a real terms fall of three per cent.

What is particularly troubling is that, as the report itself says, "all the projections in this report rest on GDP forecasts of modest growth to 2015 and of annual average growth of 2.5 per cent from 2015-2020 which, by comparison to more recent forecasts, now look optimistic."

In other words, even if the Government deliver what they promise on economic policy, most of us will still lose out.

The shift has much to do with changes in the job market, in which admin and manufacturing work is being replaced with lower-paid roles in retail, caring and leisure. As the report summarises:

The UK economy is set to create both more highly skilled jobs at the top and more low skilled jobs at the bottom, while jobs in mid-level occupations are in decline. While these changes in the structure of the labour market are good for most people, they are also set to boost pay far more for higher income households than for those lower down

When I read this I was struck by its similarity to Professor Richard Florida's recent RSA President's Lecture. He argued that economic growth is now linked closely to the levels of creativity in our cities, and that nurturing the creative industries and high tech businesses such as in London's Tech City holds the key to making Britain internationally competitive.

In the Q&A afterwards, I asked Richard about the implications of this for the job market. If our economy is increasingly based on creative, high tech businesses - ones that, for example, radically compete with traditional publishing businesses by cutting bookshops out of the loop and allowing authors to self-publish and sell direct - then what does this mean for the number and nature of jobs available in this new economy?

His answer was sobering. He pointed to the growth in "personal services" - massage, personal shopping, pedicures - and suggested that this was the future growth area for the labour market. To his credit, he made the strong point that we need to make these roles creative and enjoyable for people, and ensure they provide a good standard of living, but I was still left feeling uneasy.

Are we becoming a two-tier society, of the wealthy, tech-enabled "creative classes", and their servants?

This report today seems to suggest that there is a risk of greater divisions, at least if we continue to push single-mindedly for growth without looking at the wider social factors at play. Whilst the  report itself doesn't suggest specific policy directions for solving this problem, and stresses the complicating factors such as the spread of unemployment or withdrawals of benefits, it does point the way:

Some alternative scenarios – boosting low wages, improving skills or raising female employment - lead to modest improvements for those in the bottom half of the income distribution. However it is only when all three measures are combined that many people in the bottom half become substantially better off.

Of course the report will have its critics and it needs to be submitted to rigorous review. What is clear though is that we need a much wider and more informed debate about growth than the stultifying "increase public spending" / "get Britain back on its feet" bun-fight that is currently dominating our political discourse.

We need our Government to focus on getting every part of the economy back on its feet, particularly those who are suffering most right now. Because if we don't, we risk more and more people becoming disenfranchised in a system that simply doesn't allow them to win.