Clash of the manifestos: how can you be £900 better off and £1,600 worse off?

Published: 29th Apr 2015

"With inflation at a record low, the latest OBR forecasts show that living standards will be higher in 2015 than 2010, and are set to grow strongly every year for the rest of the decade, with the average family £900 better off"—Conservative manifesto

"Since 2010, working people are earning on average £1,600 less a year after inflation. We have seen the greatest fall in wages over a parliament since 1874"—Labour manifesto

Labour and the Conservatives have laid out strong views on wages and living standards in their manifestos. Perhaps unsurprisingly, they drew very different conclusions from the data available. Both parties are broadly correct—on their own precise terms.

Let's start with Labour. Their £1,600 figure is the change in the real terms median weekly wage from April 2010 to April 2014, multiplied by 52. This is the difference in what the 'middle earning' employee in 2010 and 2014 earned in real terms, before any taxes and benefits are taken into account. Real terms figures are adjusted for changes in prices, so they measure changes in purchasing power.

This figure is a pretty good indicator of what happened in the first four years of the parliament, but it doesn't tell us much about trends over the past year.

As the chair of the UK Statistics Authority has pointed out, the change in the median wage "does not typically represent the pay rise that most people in employment would actually experience during that period". Because the group of people in employment changes over time, the median wage can fall even when everyone in continuous employment gets a pay rise.

Given this long drop in real wages, how did the Conservatives reach the conclusion that families are £900 better off?

While Labour looked at the change in the median pre-tax weekly wage for employees up to 2014,
the Conservatives are looking at the forecast change in post-tax household income from 2010 to 2015.

It's correct that this is forecast to be higher in 2015 than it was in 2010, although it's been lower than its level at the election throughout this parliament.

Post-tax household income includes a much wider range of income sources—for example, income from investments or benefits. It also takes into account changes in employment. If wages fall but the number of people in employment increases, then the average household income can rise.

In addition, this measure takes account of changes in the tax system. As the Institute for Fiscal Studies has pointed out, if a taxpayer's wages fall by £1,600, then their take-home pay falls by at most £1,100.

Looking at post-tax income allows what the IFS calls a "fuller description" of household living standards.


Budget forecasts: take them with a pinch of salt

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