Have most British workers seen their pay packets grow over the past year?
"Most British workers have seen their take-home pay rise in real terms in the past year, the government claims."
BBC News, 24 January 2014
As the UK economic outlook has improved over the past year, the political argument has shifted from whether the recovery is taking place at all, to whether the majority of workers are benefiting from it.
Labour has argued that in spite of improving growth figures, the average worker is seeing the value of their pay packet drop. Today the government claimed that this isn't the case.
Instead, in the words of a Downing Street spokesperson, the details were "sent out to the media and [are] available on request." We requested a copy of the press notice and have been provided with one, but we think the same information should be publicly available, so that everyone is able to scrutinise the claim, not just journalists. We will be pressing for the details to be published as swiftly as possible.
What has the government done?
To reach its conclusions, the government has looked at the average growth in weekly earnings for each income decile over the course of the last financial year (April 2012 to April 2013).
The data for this comes from the Office for National Statistics' (ONS) Annual Survey of Hours and Earnings (ASHE), which itself draws from PAYE tax data collected by HM Revenues and Customs (HMRC).
However while this records the gross salaries earned by workers, it doesn't represent their 'take-home pay', as deductions will be made to cover tax liabilities and National Insurance contributions.
To reach an estimate of how the amounts that workers are actually pocketing has changed over the course of the year, the government has adjusted the data to account for that year's alterations to the income tax personal allowance threshold, income tax rates, and National Insurance rates. This gives the following table, showing how gross and take-home pay changed over 2012/13 for each income decile ('1' represents the poorest tenth of workers, while '10' represents the richest tenth).
|Decile||Gross weekly pay||Take-home pay|
The annual rate of inflation - according to the Consumer Prices Index (CPI) - over the year April 2012 to April 2014 was 2.4%, meaning that according to this analysis, real terms take-home pay grew for every income decile except for the richest.
Labour has challenged these findings, calling them "highly selective" and reasserting that "real wages have fallen by over £1,600 a year" under the coalition. So where do the government and opposition disagree?
Firstly, the government has chosen a different source to Labour, relying on data from ASHE rather than the Average Weekly Earnings (AWE) measure favoured by Labour. AWE is recorded by the ONS through its Monthly Wages and Salaries Survey, and shows slower growth in wages than ASHE over the same period.
There are also some methodological differences between the two metrics used by each side. For example, because ASHE uses employer data to inform its estimates of earnings it will miss out some groups, such as some self-employed people, who don't pay tax through PAYE. The ONS has listed some of the other differences between the two here.
The other bone of contention for Labour is that while changes to the tax system are included, changes to benefits payments are not. Whether or not these should be included will depend upon whether you wish to measure earnings or income: while welfare payments will contribute towards an individual's income, they might not be considered part of the 'take-home pay' that the government measures. Changes to the tax system will have a direct impact upon workers' pay packets. The ONS does measure how benefit payments affect household income, but hasn't yet published data for the fincancial year in question.
While the government's estimates of changes to take home pay are based upon sound numbers, whether or not these better represent how wealthy workers feel than alternative measures is contentious. However it is clear that if the government wants the public to trust its numbers, it should certainly make its analysis publicly available.