George Osborne, Chancellor of the Exchequer, is making his Autumn Statement on the economy this afternoon.

It expected that he will announce £5 billion of new investment in the public sector in an effort to keep the recession at bay, but it appears that the majority of the capital for doing this will be raised by cuts and freezes to the working tax credit (WTC).

In April this year, universal child benefit, as well as basic and 30 hours WTC payments, were frozen for 3 years. But there is still a possibility that the third element of the WTC, which is paid to couples and single parents and worth £1,950 a year, could be frozen (rather than increased in line with inflation). This would save the Government £300 million in year 1 and £600 million in year 2.

Gavin Kelly, chief executive of the Resolution Foundation, said would be unfair to take cash away from low- and middle-income families, warning that “this will hit precisely those households who have already been on the end of the most severe squeeze of their lives” and arguing this will do more damage to the economy: “Every pound taken out of their pockets is likely to be a pound taken out of consumption.”

36% of all lone parents currently claim WTCs, compared to just 15% of couples with children, according to single parent charity Gingerbread. Fiona Weir, chief executive at the charity, said single parent families won’t be able to cope with “a freeze on tax credits or a raid on benefits” when both unemployment and prices are rocketing. She also suggested that the Chancellor’s 2010 pledge that his actions wouldn’t increase child poverty is beginning to look somewhat hollow.

Some cuts to the WTC and other benefits which low-income families depend on have already been announced in the 2011 budget. As a result, the cost of childcare will increase by £600 – £1,400 by 2015 according to research carried out by the Social Market Foundation.

George Osborne is on his way to the House of Commons as we speak. It remains to be seen whether the speculation is accurate, but it may well be that, by the end of today, Britain’s lowest earners are faced with an even tighter squeeze on their finances.

The Office for National Statistics (ONS) has published the results of its Annual Survey of Hours and Earnings. The figures show that, in real terms, UK households are seeing their income drop by 3.5% as inflation outstrips pay rises.

In 2011, the median salary for a full-time worker rose by 1.4% to £26,244 and the overall growth in earnings, including part-time workers, was just 0.5%. By contrast, the Consumer Price Index (CPI) inflation rate was 5% or more.

High levels of unemployment and sluggish economic growth have seen the number of people in part-time work increase. 72,000 more people were working part-time in 2011 compared with the previous year, whilst there were 380,000 fewer people in full-time jobs.

Although the gender pay gap has been narrowed further, the rate at which this is happening has slowed down – the gap became £558 smaller in 2010, but just £179 smaller in 2011. If the rate remains as it is, it will take another 30 years for women to get the same pay as men.

The gap between rich and poor is widening, with falling income for some of the country’s lowest-paid workers combined with substantial salary hikes for directors in people in senior management.
Median earnings for directors and CEOs at leading companies rose by 15% to £112,157 – partly the result of a shift in emphasis from bonuses to basic pay. Senior corporate managers saw their salaries increased by 7.1% to £77,679.

At the other end of the spectrum, waiters and waitresses have experienced an 11.2% drop in annual earnings to £5,660, and cleaning staff are now paid 3.4% less than in 2010.
Brendan Barber, general secretary at the TUC, said the ONS data shows that the poor performance of the economy was primarily the result of a squeeze on wages. He said “falling wages and self-defeating austerity have been the main reasons for the UK’s economic woes, rather than a eurozone crisis which has yet to fully show up in official statistics.”

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