The income crisis. The cost of living crisis has dominated the economic agenda for the past year, with the focus primarily on inflation and the extent to which prices of food, energy and other essentials are rising. However, inflation is just one side of the cost of living crisis. The other half of the story is income stagnation for those both in and out of work. Years of minimal pay rises mean that wages are not expected to return (in real terms) to their pre-financial crisis levels until 2027. According to the Resolution Foundation, had wages continued to grow at their pre-2008 rate, they would be £292 a week – or £15,000 a year – higher. As a result, over a quarter of households have less than a month’s worth of income to fall back on as a buffer. This means relying on social security which too has failed to keep up with the rapidly rising cost of living and is at its lowest level on record. A new report, published yesterday by the New Economics Foundation (NEF), predicts that budgets are about to be squeezed even more. It finds that 43% of households, and 90% of single parents, will be unable to afford a decent standard of living by the next election

  • Raising pay. Demands for wage increases are growing, with industrial action either planned or soon to be voted on across most of the public sector throughout December 2022 and in the new year (see our weekly updates for more detail). There are also calls for the government to take action across the board, with the TUC, for example, calling for a £15 minimum wage

Bridging the gap: a national living income. Successful industrial action and an increase in the minimum wage will go a long way to improve living standards. However, those who cannot work, cannot work full time or for whatever reason cannot rely on income from a decent wage, must rely on the social security system. While there has been strong resistance over the past decade to welfare cuts and specific aspects of the social security system such as the two-child limit and the benefit cap, attention is rarely focused on designing a new system altogether. NEF’s new report ‘The National Living Income: Guaranteeing a minimum income for all’ attempts to bridge the gap (see NEF’s Alfie Stirling’s summary here). It calls for Universal Credit to be replaced with a national living income: a plan which would create a minimum income floor below which nobody (employed or not) could fall and could see the disposable income of the poorest families rise by 50%. The research uses the Minimum Income Standard (MIS), a way of measuring living standards developed by the Joseph Rowntree Foundation (JRF) and the Centre for Research in Social Policy (CRSP) at Loughborough University. It is used to calculate the ​‘real’ Living Wage. The proposal is involves a number of key reforms:

  • A guaranteed minimum income. NEF proposes that a minimum income should be guaranteed which amounts to at least 50% of the Minimum Income Standard (MIS) after housing and childcare costs (AHCC). This compares to 35% and 33% of MIS (AHCC) for single adults and couples over the age of 25 (respectively) on UC.
  • Alignment of tax and income protection. It also proposes that nobody would pay tax or have benefits withdrawn until their income reaches 100% of the MIS (AHCC) for a single adult, which would include reform to personal tax allowances and work allowances.
  • A universal national allowance. A universal national allowance of £187 a month would be paid to almost everyone in the “as a new pillar of income protection for all, and making up part of the 50% of MIS guarantee”.
  • Additional payments. NEF proposes that additional payments be made to ensure that disabled people and those unable to look for work in the near future receive up to 100% of the MIS (AHCC) in income support.
  • Enabling auto-enrolment onto the NLI. The National Living Income would be calculated and paid automatically when incomes fall in the same way that tax contributions rise when incomes go up. NEF says that this would eliminate the five-week wait for Universal Credit.
  • Scrapping existing caps, limits and sanctions. NEF proposes scrapping the existing caps on social security, including the benefit cap and the two-child limit. 

How to pay for it? NEF estimates that implementing the full national living income reforms would cost £70.6bn per year in 2021/22 prices, with an initial package of reform costing £25.3bn. The authors of the report, Sam Tims and Alfie Stirling, argue that this could be funded by “closing the gap in effective tax on income from employment compared with income from wealth and ensuring higher earnings pay the same marginal rate of national insurance as everyone else”. They say that this would include “extending national insurance to investment income, equalising the rates of tax on capital gains and dividends with income tax, and abolishing the upper earnings limit to national insurance contributions”.

Benefits of a national living income. As the report outlines, recent events such as the Covid-19 pandemic have brought the inadequacies of the current social security system into sharp focus. The pandemic also opened the door to “radical economic reform” and the possibility of universal income support, explains the FT’s Martin Sandbu. The furlough scheme created a shift in opinion about universalism, away from the principle that support should be “the least you can get away with”. A national living income would introduce such a universality,  reducing the need for ad hoc crises schemes such as furlough, while at the same time targeting support to those most in need. Former Prime Minister Gordon Brown has echoed the language of a living income, calling for “a decent minimum standard below which no one should ever fall”, with the Government needing to “take the shame out of need”. 

  • Who would benefit? NEF argues that under the national living income scheme, two-thirds of the population would see their disposable incomes rise, with the poorest families seeing a rise of as much as £500 a month on average. Severely disabled people would see a rise in incomes of 32% on average, while single parents would see a rise of 18%. 
Weekly Updates

Climate change

Onshore wind. The government has pledged to relax restrictions on building onshore wind farms in England after pressure from campaigners and a threatened rebellion from Conservative MPs. The move would see a change to current rules which mean that companies can only build onshore wind turbines on land specifically designated by local councils in a local plan. An effective ban that has led to a steep decline in the number of wind farms. Under the new proposals, the government says that "planning permission would be dependent on a project being able to demonstrate local support and satisfactorily address any impacts identified by the local community".

First new coal mine in 30 years. The Government has given the greenlight to build a new coalmine in Cumbria: the first in 30 years. The £165 million project is set to produce 400,000 tonnes of greenhouse gas emissions per year. The arguments in favour of the mine “do not stack up” argues the New Statesman’s India Bourke due to the fact that “the mine’s high-sulphur coal would not be suitable for use to any great extent” and would do little to resolve the UK’s energy crisis, with West Cumbria mining itself admitting “that around 85 per cent of the mine’s output would be exported”.


Labour Commission on the UK’s Future. The Labour Party will consult on replacing the House of Lords in response to a 40-point plan written by Gordon Brown having been tasked by Keir Starmer in 2020 to find ways to “settle the future of the union” and devolve “power, wealth and opportunity” throughout the nation. The report begins by outlining the problems with the UK’s “outdated neo-liberal economic dogma”, linking constitutional reform to economic reform, stating that “the more we lag behind economically the more people feel abandoned by an unresponsive system of government”.

Devolved economic power. The report does not go far enough in challenging “where power rests in the UK” and critiquing “the economic model that aides and abets [over-centralised decision-making]”, argues Sarah Longlands of the Centre for Local and Economic Strategies (CLES). Constitutional reform “cannot sit in isolation”, argues Longlands, and must be coupled with efforts to “decentralise the power of extractive capitalism”.


Christmas dinner inflation. The cost of Christmas dinner has risen three times faster than wages this year, according to research by the TUC. It finds that if wages had increased as much as the cost of a turkey since Christmas 2022, the average worker would have an extra £76 a week. Meanwhile, the cost of cranberry sauce and bread sauce have risen six times faster than wages (by 33 per cent). 

2% inflation target. Central bank inflation targets of 2% should be revised, argues French economist Olivier Blanchard. He argues that in order for monetary policy to have economic effect, it must have salience, referencing research which suggests the point at which inflation has salience is 3-4%.


Industrial action. Workers are striking across a range of sectors throughout December with further action likely in the new year as several strike ballots (including for firefighters and teachers) are due to close in January. The Guardian has mapped all major public service industrial action across December, which shows that there will be at least one strike per day throughout the month.  

  • Wage price spiral? Over the past week, commentators from across the spectrum have called for public sector pay rises, dismissing the argument that such interventions would lead to a wage-price spiral. The FT’s Martin Wolf points to analysis by Ben Zaranko at the Institute for Fiscal Studies which notes that public sector wages do not directly contribute to inflation due to the fact the public sector does not engage in price-setting. Increased spending power caused by public sector wage rises are also unlikely to affect inflation, argues the Guardian’s Phillip Inman, due to the fact that any extra cash for these workers will be spent on energy bills and food: two costs which are dictated by global markets. For more on the wage-price spiral debate, see our latest thread and Digest from the summer. 

Health and the labour market. Poor population health is affecting the UK labour market’s ability to bounce back from the Covid-19 pandemic, according to new research by the Institute of Public Policy Research (IPPR). It references the fact that “2.5 million people are economically inactive because of long-term illness – the highest level since records began” and that “around 700,000 of this 2.5 million say they would like a job”. It argues that “policy needs to improve population health, and limit the harm caused by illness” by preventing illness where possible and by “following the logic of the social model of disability”, reducing “the societal barriers faced by people living with health conditions or impairments, whether through: more tailored routes to work; more inclusive employment practices; or more empowering employment and welfare support”.


Big Bang 2.0. Last week, the Chancellor announced a set of 30 financial policy changes, dubbed the “Edinburgh reforms”, which will “review, repeal and replace” a set of measures introduced after the 2008 financial crisis. The “Big Bang 2.0” proposals include plans for a central bank digital currency and changes to the rules on short-selling. The economist who led the independent review of the UK banking industry after 2008, Sir John Vickers, has said that the reforms could take the UK down an “extremely dangerous and wrong path”

Lessons from the original Big Bang. The Big Bang of the 1980s had negative implications for “people and planet”, argues the Finance Innovation Lab’s Jesse Griffiths, stating that attempts to copy such a problem of deregulation are “worrying”. Griffiths argued that tackling the climate crisis and financial exclusion, “not a race to the bottom in the name of ‘international competitiveness’”, are the issues that financial regulators should focus on. The Finance Innovation Lab leads the Finance For Our Future campaign: a coalition calling for the Financial Services and Markets Bill to prioritise climate, inclusion, stability and accountability.