The Centre for Policy Studies claims (pdf) - to the glee of the Daily Heil - that disposable incomes for the average household have fallen since 2002. I've got three gripes with this.
1. The average and the median are very different. The CPS claims that the average household pays £7800 a year more in taxes than in 1997. But this is largely because a few super-rich have seen their incomes - and therefore their taxes - soar. For the more typical household - those in the fifth decile - direct taxes (which include council tax rose) by an average of £1441 between 1997-98 and 2005-06. Indirect taxes rose a further £753. And these increases are largely due to a 40% rise in pre-tax income. (table 6 of this pdf and table 21 of this pdf.)
2. There's a curious treatment of housing costs. The CPS's claim that the average household has got poorer since 2002 rests upon the belief that mortgage costs have more than doubled. Now, ordinary mortgage rates have certainly not doubled since then. So how have payments done so? It's because house prices have soared, raising the average mortgage debt. But this is only an outgoing for that small fraction of people who bought recently. Someone who bought before 2002 has seen a much smaller rise in mortgage costs.
Regarding rises in house prices as a pure cost - as the CPS does - is about as daft as regarding them as a pure benefit.
3. It treats the public like fools. The CPS fails to ask the obvious question: why, if average people have gotten poorer since 2002, have retail sales boomed since then? Instead, it claims that "excessive debt" and lower disposable incomes mean "British households are more vulnerable to, and less prepared for, any downturn."
No doubt, this is true of some households - but anything is true of some people. What it fails to consider is the possibility that households took on extra debt for a good reason - that they reasonably anticipate rising incomes, just as Milton Friedman's permanent income hypothesis says.
And herein lies a puzzle. The CPS describes itself thus:
The CPS was founded...to champion economic liberalism in Britain and has since played a global role in the dissemination of free market economics. Its policy proposals are based on a set of core principles, including individual choice and responsibility.
In presuming that people were wrong to spend and borrow, how are economic liberalism and individual choice being championed?