Are you really worse off? Er, yes.

Labour has recently made some headway with its message that there is a cost of living crisis - which has continued despite Osborne's recovery. This feeds a number of other important messages, including that this is a recovery for the rich, and that you're being ripped off - and so the energy price freeze fits into the same narrative.

The average non-retired household is today 6.4% worse off since the recession - that was the finding of a report by the Office for National Statistics out earlier this week. It showed that the average household income fell from £37,900 to £32,600, in real terms over the last five years.

In fact, the average household is £300 a year worse off than it was in 2002/03. There is therefore a 'lost decade' of stagnation for household incomes.

This decline in income triggered entitlement to extra benefits (e.g tax credits) so that benefits rose from providing 7.6% to 12.3% of gross income for the median household. This is fundamentally a redistribution in the cost of living from the employer to the state - as a result of pay freezes and pay caps. So when Labour talks about a structural welfare spending cap (not individual benefit caps which are disgraceful) it is alluding to this phenomenon, and pledging to deal with the structural issues - and advocating the living wage is a part of tackling low pay subsidies like tax credits.

The resonance that Labour has had with this line has rattled the Tories.

So, in a blatantly politically-driven misanalysis, HM Treasury has produced data that shows compensation for workers has stayed the same, but what they don't see is that employers are paying more in national insurance and pension contributions. The idea that wages have been cut to sustain or even increase profits is, apparently, a myth.

Sky's economic correspondent, Ed Conway, says the Treasury report explains:

"Overall compensation includes not just wages but also the social contributions made by employers, including pension contributions and National Insurance Contributions. Technically-speaking, these are forms of payment, except that because they don’t go straight into your pocket they don’t feel particularly obvious."

In fact a less kind interpretation of this Tory spin - still not on the Treasury website - is that because it doesn't goes into your pocket, it's not really payment.

So the Tory argument is that pay has gone down (Ed Miliband's cost of living crisis) due to NI contributions going up (all Gordon Brown's fault) and pension contributions going up (your fault for living longer).

However, the argument doesn't really stack up for several reasons:

1. Pension contributions have only gone up in real terms for funded pension schemes - which most workers don't have
2. Part of the reason extra pension contributions are needed are due to pension holidays taken by employers in the 1990s
3. Is the logic of the Treasury analysis of NI rise that a cut in NI would be passed on to workers in higher wages
4. If that's the case why have the cuts in corporation tax not been passed on to workers then? Because corporation tax has fallen from 33% to 28% under New Labour, and now down to 22%.
5. If we're all actually no worse off why - by official figures - are a million more of us living in poverty? Why are half a million of us using food banks this year?

(There's a more detailed and wonkish analysis by the TUC's Duncan Weldon here)

So was this just a political attack to try to blunt Labour's resonant cost of living line? If so, it's another sign of the civil service being used for party political purposes (and not the first time either).

But it's an indication that ahead of this year's Autumn Statement, Osborne has only spin to offer.

Once more on the great disappearing unemployment mystery ...

Last week we reported on the great unemployment disappearing act, focusing on growing divergence between the claimant count and the ILO measure of unemployment (see graph).

But this growing disparity isn't uniform across the UK. As the chart below shows, there is a massive regional disparity between the claimant count and ILO unemployment in some UK regions, but a close correlation in others.

To make matters clearer the table below shows, for each region or nation of the UK the claimant count as a percentage of ILO unemployment:

Our 13 November analysis highlighted the growing divergence between the two unemployment measures (showing that in 1993 the claimant count was 96% of ILO unemployment, but today is only 53%.

Health warning: the figures used are from the latest ONS Labour Market Survey stats, which for claimant count are October figures and for ILO measure are July-September. However, this difference in monthly accounting does not explain the sharp differences either within or between regions.

However, across the UK there are massive disparities. So why is it that in London and the South if you're unemployed you are far less likely to claim jobseeker's allowance than if you're in the North East or Northern Ireland? And why does jobseeker's allowance reach so many more of the unemployed than everywhere else in the UK?

What explains the differences? I honestly don't know, but I've posited some options below - please leave your views in the comments ...

• Unemployed people in London and southern England are more likely to be ineligible for JSA due to household circumstances or personal savings
• Bad data - the regional data for ILO unemployment is dodgy (the claimant count won't be as it's simply the number of people claiming JSA)
• Sanctions are being unevenly imposed across different regions - disproportionately reducing the claimant count in some regions
• The stigma of claiming benefits is stronger in some regions than others
• Something else? Let us know in the comments ...

UPDATE (21/11/13): As was pointed out by Labour market stats wonk, Paul Bivand, Northern Ireland has some devolved powers over social security - and the UK sanctions data (analysed here) doesn't include Northern Ireland. So is that the answer - is it due to a less stringent sanctions regime there?

Rising unemployment and failing Osborne

Today's unemployment figures were a timely update on the failure of the coalition's austerity policies. Unemployment has risen by 129,000 in the last 3 months to 2.62 million, while youth unemployment broke through 1 million for the first time ever.

First the stats: the unemployment rate (8.3%) is the highest since 1996, the numbers unemployed the highest since 1994. Youth unemployment is the highest on record, and female unemployment the highest since 1988 (Q: what do all those years and 2011 have in common?*).

The youth unemployment figure reflects a failure to create jobs - nearly a quarter of young unemployed people have been without a job for over a year. That is a grim statistic (read Danny Dorling's Injustice for the impact long periods of unemployment have on young people). With no strategy to create jobs, new cohorts of young people are going to be added to those figures in the coming months and years.

Female employment is rising faster than ever predominantly because of public sector job cuts. In the last two years 250,000 public sector jobs have gone - 110,000 in the last 3 months alone. Several areas have been particularly badly hit: the civil service has lost 8,000 jobs per month in the last quarter. But even in supposedly protected areas like the NHS and education 26,000 and 16,000 jobs respectively have gone in 3 months.

Now the economics: With unemployment rising, and employment falling 300,000 in the quarter that means fewer people are paying taxes and more people are claiming benefits (though nowhere near the number who are entitled to). These people are in turn spending less (because they have less) depressing the private sector and reducing VAT revenues.

This is bad news for Osborne because, combined with flatlining economic growth, it means the government is receiving less revenue and paying more out in welfare than it projected.

Worse still for Osborne is that inflation is at 5.4% while wage increases lag at 1.7% - meaning living standards are falling (depressing demand, reducing VAT revenue, etc).

This leaves Osborne with a choice ahead of his autumn statement on 29 November: will he cut more to reduce expenditure or borrow to stimulate the economy in some way? If he cuts he'll exacerbate the problem, but if he borrows he'll be forced to abandon his 'Plan A' and admit he was wrong. So the question is whether the misery of millions is a price worth paying to temporarily shield Osborne's ego?

This is a big issue for Osborn, who based his economic policy on 'crowding out' theory. In the June Budget he promised to slash the bloated public sector which was crowding out private endeavour and depressing the economy. LEAP dismantled that argument in October 2010 'Osbornomics unravels'.

At that point Osborne was predicting economic growth of 2.6% in 2012, and jobs growth from the private sector. The jobs have failed to materialise (despite determined slashing of the public sector) and the Bank of England downgraded its 2012 growth forecast to 1%.

Osborne appears not for turning, so it's up to us to turn him out of office, but his motley millionaires turn the UK into Greece.


* A: Tory governments

Evidence of the 'squeezed middle'?

Labour leader Ed Miliband, and the rest of the Labour frontbench now seem to be triangulating towards a group they have dubbed the 'squeezed middle' although he seems a bit confused about who the 'squeezed middle' is.

The term has been coined by the Resolution Foundation (RF), which seems a fairly New Labour-ish kind of think-tank populated by the usual pretentious canape-devouring circuit that churns-out 'influential' waffle at an impressive rate.

Still at least RF knows what it means by the 'squeezed middle': "the 11 million households who (sic) earn between £12,000 and £30,000 a year". To most people that might look the vast majority of the working class, and really would be better described a low income households (full-time on the minimum wage is over £11,500), and indeed as well as using the political soundbite 'squeezed middle' they also use the more prosaic epithet "low-to-middle earners".

The language is important here: why from "low-to-middle earners" has Ed Miliband adopted "squeezed middle". Admittedly, "shat-upon-poor" is less acceptable to the Daily Mail, but it seems the concerns of the poor or low paid are so illegitimate as to be irrelevant to the new Labour leader (should that 'n' be capitalised?).

Miliband actually appears to be crow-barring higher earners into the "squeezed middle" too - stating those having child benefit removed are also the "squeezed middle".

Clearly Miliband is confused.

However, there is no reason for him to be: the low and middle income households are indeed being squeezed. Serious evidence of this was published this week by the Office for National Statistics in their Family Spending survey which showed for the first time (in the 10 years the data has been published in this way) UK household spending declined over the last year.

In 2009 the average household spent £455, down from £471 in 2008. With unemployment rising, short-term working, and pay freezes it is not surprising that households tightened their belts over this period.

The risk must be that with unemployment still high, and likely to rise further, there could be a continued downward slump. It is also clear evidence of the need for policies that are redistributive rather than regressive. With the Coalition cutting jobs, freezing pay and slashing benefits household expenditure will tighten further.

The squeeze exists, but not exclusively for the middle.