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Reduced spending power is what could finish this government

Real personal disposable income is arguably the most important index of economic welfare. When families’ disposable income is going up, even if by only a little, there is broad, even if only minimal, contentment. But when it starts to go down, especially if the trend continues to go down for any significant length of time, some very significant consequences follow for families, for the economy, and for government. On that basis the latest figures which relate to the first quarter of this year, showing a full 1% fall in disposables incomes in just 3 months, are very serious.

First, for families, this very personal experience of austerity is more than just tough; for many it’s disastrous. A high proportion of British families live day to day perilously close to the poverty line. To paraphrase Dickens’s Micawber principle, income sixpence over a pound – happiness; income sixpence below – penury. And if a quarter-year fall of 1% becomes an annual fall of 4%, or even more, that collapse into the experience of poverty is dramatic and precipitate. The political impact is magnified well beyond what the figures might seem to suggest.

For the economy a big fall in real personal disposable incomes is equally damaging. Real incomes are the main driver behind consumer spending, and the latter determines two-thirds of GDP. So it’s hardly surprising that GDP fell sharply in the next 3 months, by 0.7% in the second quarter of this year. But to carry on like this is the economic road to perdition.

For the government the lights are flashing red, even more than before. Where is the demand to come from to deliver the growth so avidly sought after? Not exports when the downturn is virtually global. Not investment when companies are sitting on an unprecedented £750bn cash stockpile, but refusing to invest for lack of demand. And not now consumer spending when it is falling at historically one of the fastest rates ever.

And then there’s the colossal injustice of it all. FTSE-100 directors’ pay rose last year by 49%, the richest 1,000 persons in the UK bagged another £155bn in the last 3 years to add to the £259bn they already had, but the other 99% are now losing income at a rate of 4% a year. To paraphrase again, this time McEnroe, the government cannot be serious. But they are, deeply and relentlessly serious. They are going for broke, and so are we.

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