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The opportunity and challenge of the everyday economy depends on our understanding of the everyday and its socioeconomic crisis, and on our analysis of the appropriate political response. The first section of this article summarises the developing argument about defining the everyday and how liveability matters, before observing that mainstream economists and politicians continue to assert and assume that higher wages will deliver higher living standards. The second section starts from the different position that liveability has three pillars: disposable and residual income, foundational services and social infrastructure. It then argues that the current acute ‘cost of living’ crisis is superimposed on a twenty-year chronic crisis of everyday liveability caused by the crumbling of all three pillars. The final section of this article discusses the political implications of this analysis. The challenge is to improve liveability for all, while addressing the disposable and residual income disadvantages of low wages. This is an opportunity for Labour (and other parties), but effective response requires both a reset of central state policies, as well as a rethinking of politics, so that government recognises and empowers the diverse and distributed sources of social innovation.
The discovery of the everyday and the mainstream pursuit of high wages
The initial academic work on the everyday focussed on large, neglected sectors of the economy which involve collective provision for essential human needs. This covered the welfare state, plus utilities and other networks such as food production, distribution and retailing. The University of Manchester’s Centre for Research in Socio Cultural Change (CRESC) foundational economy manifesto in 2013 distinguished providential services like health, education and care, and material systems like the pipe and cable utilities. UCL’s Institute for Global Prosperity in 2017 conceptualised these as Universal Basic Services. The implication was that public policy had been overly focussed on the tradeable and competitive sectors. The argument was that the foundational sectors meeting essential needs and employing more than 40 per cent of the UK workforce had been underfunded and damaged, especially by ill-considered privatisation and outsourcing.
The focus broadened practically with Rachel Reeves’ 2018 pamphlet on the ‘everyday economy’, because that expanded the definition to include an overlooked economy of hairdressers and takeaways on the high street. More intellectually, the CRESC researchers published a 2018 book that set the development and subsequent neglect of the foundational economy in historical context. Working as Foundational Economy Research Ltd. (FERL), this same group of researchers recognised that foundational services mattered, but citizens also lived in places where two key considerations were attachment to place and household residual income (the income left after purchasing essentials). A series of studies of ordinary Welsh places, including Morriston and Blaenau Ffestiniog, highlighted the importance of attachment to place and social infrastructure which sustains sociability. Analysis of the income-sharing household unit showed that higher gross and disposable income did not indicate higher living standards if housing costs were high—as in the case of London where private renters account for a quarter of households.
FERL’s liveability approach to the everyday economy revives household economy ways of thinking which had been important from B. S. Rowntree to Archbishop Temple, before they were eclipsed in the late 1940s by national income accounting and its metrics. In the mainstream, this economisation narrowed the focus onto consumption proxied by the superordinate objective of whole economy growth, with GDP per capita as the individualising metric of success. In effect, this involves a very unfoundational privileging of private consumption, which by the 2010s accounted for around two-thirds of nominal GDP. These technicalities reflected a set of political assumptions about what we might call market citizenship. New Labour took over the Conservative belief that the greater good would be served by the expansion of GDP/marketable output/private consumption. They dropped the Tory rhetoric about ‘low taxes’, but retained the assumption that the tax dividend from economic growth would pay for tax-funded public services. This last proposition about the growth dividend is the British centrist equivalent of the Laffer curve for the American right.
From the market citizenship point of view, the task of government is then to solve the UK’s economic problems by getting more citizens into jobs at higher pay, which will then lift living standards. This was certainly so in the period of the Johnson government from 2019 to 2022. Boris Johnson in his 2021 Conference speech set his direction as a ‘high wages, high skills, high productivity’ economy. And Labour opposition was about endorsing these priorities and complaining, as Keir Starmer did in response, that ‘this government has no plan for getting there’. Michael Gove’s 2022 White Paper, Levelling up the United Kingdom, committed to ‘boosting productivity, pay, jobs and living standards by growing the private sector, especially in those places where they are lagging’; and, in response, the commentariat from Martin Wolf in the Financial Times to Will Hutton in The Observer complained only that the government did not have an adequately resourced plan to deliver this.
The policy objective of a high wage economy was asserted ever more defiantly by those, like Boris Johnson, who recognised the UK economic reality is ‘low wages, low growth, low skills and low productivity’. The idée fixe about private consumption was carried over into the subsequent briefing wars between Tory leadership candidates in the summer of 2022, when Liz Truss and Rishi Sunak divided over whether tax cuts should come now or later. They avoided explaining how they would tackle the acute cost of living crisis, and glossed over how low wages is the embedded result of structural change in the economy, exacerbated by the policies of successive governments since the early 1980s.
In 1951 the UK was an economy of patriarchal households: no more than 20 per cent of married women worked regularly and 5.9 million men worked in manufacturing, which offered family-supporting wages for the semi-skilled. From 1979 onwards, the replacement jobs were mostly lower paid private sector service jobs, with tax-funded jobs making up the numbers: the state and the tax-funded para-state created more than half of all new jobs under New Labour between 1997 and 2007 and continued to contribute in the austerity years. The result was a bottom-heavy wage distribution, with many in low wage and short hours jobs which could not easily support a family; the minimum wage increasingly became a ceiling and zero hours proliferated. In 2020, 14 per cent of all UK jobs were classified as low (hourly) pay, with rates less than two-thirds of median hourly earnings and 90 per cent of these low pay jobs were at the minimum wage. More important, from a liveability point of view, 28 per cent of jobs were classified as low paid (on the basis of gross weekly earnings) because they do not offer enough hours.
The consequences of this deterioration in the composition of employment were buffered by an increase in female participation and the rise of the two-earner household: by the late 2010s, around three quarters of active age men and women worked. But the gain was limited, as the costs of working increased for dual earner households. Two earners mean the commodification of childcare, which in the UK eats heavily into earnings. The OECD calculates net childcare costs (after government support) and in the UK these are higher in relation to income than in any other large OECD country. The other big problem for the low paid is the cost of owning and running a car, which has increasingly become the universal tool for accessing work, retail and leisure in UK towns and cities with the post-1980 edge town developments all designed around car access. By the late 2010s, half of social housing tenants had cars, but they could only afford one car which the man typically takes to full-time work. The gendered result is that in Newcastle, women account for 79 per cent of part time workers and 76 per cent of female part time workers travel less than 5 km to work.
The acute ‘cost of living crisis’ and the chronic crisis of everyday liveability
Mainstream UK politicians recognise crisis as an episode which unexpectedly interrupts the trajectory of economic growth and with long-term consequences mediated by public policy. Thus the ‘cost of living crisis’ in 2022 appears as another black swan event like the Covid pandemic of 2020–1 and the great financial crisis (GFC) of 2008. An increasing number now accept that the policy consequences of the GFC were peculiarly unfortunate, because they combined austerity cuts in funding for public services and infrastructure with an asset price bubble fed by low interest rates, which now have to be raised as stagflation sets in. From the episodic point of view, in 2022 we have a new and unexpected acute crisis about the rising prices of essentials like energy, food and motor fuel amidst general inflation of more than 10 per cent, which is altogether unmanageable for low income households and energy intensive industries. But this acute crisis overlays a deeper, chronic structural crisis about foundational liveability as an unsteadily worsening state of affairs that goes back at least to the mid-2000s and is likely to continue through the 2020s. To understand this, we shift the analysis into a household economy frame.
Income appears as individual on pay slips. But household sharing of expenditure and pooling of incomes is hugely important in any society: in the UK in 2019–20, there were 19.8 million multi-person households, with only 8.3 million of us living alone. Within this frame, we distinguish between three kinds of household income which can be measured from official statistics: (a) gross or top line wages; (b) disposable income after tax deductions and cash benefits; and (c) residual income, defined as what remains after spending on the irreducible essentials of housing, energy, food and transport. Residual income on this basis is not a measure of what is available for discretionary spend when the first round essentials exclude items like mobile phones and school uniforms.
The cost of living crisis is then about the limits of household residual income in a low wage economy. Utility bills are basically a regressive flat charge on all households. With the price capped energy bill projected to double year on year to £2,800 by autumn 2022, a £15 billion aid package offered £1,200 to almost all the 8 million households on benefits as nearly full compensation for an unmanageable rise in energy bills. However, by summer 2022 the price capped energy bill was projected to rise to £4,200 by mid-winter and further intervention was unavoidable. Without intervention, more than half of UK households would be in fuel poverty, spending more than 10 per cent of disposable income on fuel, while nearly one quarter of households would be spending more than 20 per cent on fuel.
By late 2022, the acute residual income crisis was hurting middling income groups, as well as the low paid and those on benefits. This was because of worsening chronic problems about the rising cost of essentials over the decade of the 2010s. The increasing use of food banks indicates a growing number of households in difficulty about putting food on the table, while covering the bills for weekly essentials like rent and heating, as well as one-offs such as school uniforms or replacing a cooker. Between 2008–9 and 2019–20, the number of Trussell Trust food bank emergency users increased every year from 26,000 to 1.9 million (before Covid lockdowns brought a further sharp increase).
But this chronic problem about stressed households and increasingly squeezed residual incomes interacts with another about disposable income, given the tax and benefits slice from the incomes of the low paid. In the patriarchal 1950s and 1960s the male breadwinner could support a family, and Beveridgean social insurance had accordingly been focussed on cash benefits for the unwaged. In the low wage dual earner economy of the 2010s and 2020s, benefits have been diverted into wage subvention, institutionalised by Universal Credit (UC) which amalgamates hitherto separate benefits. The mean low pay household in the second lowest income decile has some £17,000 in income from employment and receives £8,000 in cash benefits, accounting for nearly one-third of their £25,000 disposable income.
The mainstream recommendation to such households would to get a better job, because higher wages will surely raise household income and living standards at the same time as this reduces welfare dependency. But, this is not so in the UK when low wage subvention is normalised and benefits are means tested. Here, the rise in disposable income resulting from a gross income increase is negligible, as taxes increase and benefits are withdrawn. The resulting income retention problem is the logic of the UK tax and benefits system. The three deductions of income tax, social insurance and compulsory pension contributions take 35 pence from every pound of gross income; and then, for those on UC, cash benefit is withdrawn on a taper rate of 55 pence from every pound of disposable income. In this case, working longer hours or getting a better paid job brings few disposable income benefits to the low income household.
It is worth emphasising that this income retention problem is not a quirk of the tax and benefits system that only affects a minority of very low income households with a single part time wage earner. This point can be demonstrated by considering the case of a household of two adults and two children who are social housing renters; what George Osborne would have called a ‘hard working’ family, with one full time low paid earner and one part time minimum wage worker. On our assumptions about wage rates and hours worked, this two earner household’s gross income becomes a joint disposable income of £32,000 (after paying tax and receiving UC). UC benefits are set low to incentivise the unemployed to take up work, so this household’s joint disposable income from employment is well above the £20,000 they would get from benefits when unemployed; it is also above average household disposable income in the poorer districts of north and west Britain, which typically varies between £25,000 and £29,000. But the income rewards of getting one better paid job (or working overtime) for this two-wage earner family are negligible. A 20 per cent increase in gross income for the main (full time, low wage) earner in our hard working household turns into a 3.6 per cent increase in household disposable income (after housing costs) because of the tax and benefits slice.
These income mechanics will, in 2023 and beyond, greatly complicate the containment of price inflation which runs ahead of wage increases. The Governor of the Bank of England warns about wage-price spirals driven by expectations; for low paid workers in the UK, it would be more realistic to describe their pay claims as attempts at price-wages catch up driven by tax and benefits policy traps. The issue here is not whether some Labour front benchers join strikers on picket lines, but that few in the political classes recognise the income retention problems that feed strikes. From a broader perspective, the chronic problems about residual and disposable income stress households all the more, because they are paralleled by longstanding problems about underfunded foundational services and decaying social infrastructure.
The NHS is particularly interesting, because it is sentimentally the UK’s national treasure and practically a complete mess. In response to underfunding, the hospital system has been reworked as a high flow, low stocks system, which cannot cope with external demand fluctuations, and now in England after Covid the NHS cannot clear the backlog of 6 million who are on the waiting list for non-urgent treatment . An increasing number of UK citizens are paying to go private so that out-of-pocket spend by Britons on medical expenses has doubled to 1.8 per cent of GDP over the past thirty years and has now reached American levels. The sense of neglect, underfunding and falling apart is reinforced if we turn from services like health and care to social infrastructure like public parks and libraries; the latest manifestation is the threat of swimming pool closure as the municipal pools constructed in the 1960s and 1970s need expensive renewal and the rest cannot afford their energy bills.
This is all tough on our ‘hard working’ household whose disposable income cannot stretch to out-of-pocket surgery or to the subscription for a gym with a private pool. And this is important, because for liveability the UK needs an alignment of adequate income (disposable and residual), with good, sufficient foundational services and social infrastructure. The alignment of these three pillars of liveability secures that balance between collective and private provision is the mark of a civilised liberal society. Those who endorsed market citizenship from the 1980s onwards wanted (or accepted) a rebalancing towards income based private provision. But, in our low wage society after the 2000s, the outcome is a broken balance as all three pillars of liveability are crumbling, while higher income groups cannot entirely buy their way out of the mess by taking out another subscription.
Political implications: resetting policy and rethinking politics
The analysis in the last two sections has radical implications for policy and politics. The current crisis of liveability is acute, because we are in the later stages of a chronic twenty-year crunch resulting from the failure of a forty-year market citizenship project. UK political classes have generally not recognised this, and the result is politics as a quagmire centred on objectives like ‘levelling up’, where policy makers cannot achieve their aims and cannot admit defeat. At the same time, we would concede that the necessary reset is very difficult, because rebuilding the pillars of liveability and rebalancing private and collective consumption is a generational project which does not easily fit into an electoral cycle of four years. Equally, the project does not fit the model of electoral competition, because the project of rebuilding and rebalancing is one which Labour would have to share with other parties, especially the Greens and Scottish and Welsh nationalists who are all in different ways the residuary legatees of social democracy.
In this section we sketch some of the issues around reset in a complex political system of multi-level government and governance. The sketch begins in Westminster and Whitehall with the central state, because the UK remains a highly centralised polity, despite three-nation devolution and elected mayors; and because capturing this central state has traditionally been the focus of both main parties.
The reset has to start by rethinking the aims of policy. The market citizenship aim of more jobs at higher wages needs to be bracketed, because the political classes have no policy lever which will deliver that result, especially in the outer regions of north and west Britain where any kind of job creation is fitful. North East England, for example, is a region of high job churn and limited net new job creation, with just 26,000 net new jobs created between 2010 and 2020 and positive net job creation in just five of those eleven years.
The first positive aim of reset policy has to be making low wages more liveable, that is, ensuring that those on relatively low incomes do not suffer the disadvantages of poverty in present day society. And this opens onto the long-term objective of the liveability agenda: not higher gross value added per capita, but an increase in healthy life expectancy which currently in the UK’s depressed districts is ten years lower than in high income suburbs. This should not be thought of as charity or redistribution. Insofar as ‘unliveability’ is addressed through rebuilding the three pillars (income, foundational services and social infrastructure) and rebalancing private and collective provision, this would put the whole society back onto an upward trajectory of liveability and good life for all, and make it more likely that net zero targets could be met.
If we shift from ends to means, the first prerequisite is to break with the limits of knowledge at a distance which does not engage specifics. The false assumption that higher wages mean higher living standards is emblematic of so many other at-a-distance knowledge misunderstandings. Our work on backward linkages from foundational service provision highlights the need to shift industrial policy from its emphasis on early-stage innovation and missions, and to refocus regional policy away from its preoccupation with skills and transport infrastructure. We need chain analysis about whether supplier bases are financially sustainable, so they can reinvest, as well as offer decent pay and conditions; and then policies for hard and soft infrastructure which more effectively support SMEs in unglamorous activities like food processing
When resetting policy levers for liveability, we also need to be cautious about promising more than the centre can deliver in the short and medium term, when deliberative democracy is in its infancy and the apparatus of our central state is deskilled by years of retreat and timid deference to private business. For example, utilities regulation suffers from micro economics-based regulation which, in water and other areas, has been completely unable to restrain extractive investors. The utilities could usefully be incorporated into a larger system of social licensing. But this requires deliberative innovation and financially literate administrative capability; a starting point in a utility like water is to tighten regulatory standards on environmental discharges.
More positively, policy reset should be addressed through the approach which the French architects Lacaton and Vassal term ‘adaptive reuse’ when tackling problem social housing developments (which others would demolish). In this case, the central state needs starter policies which begin to make a material difference to households and lever open issues which have been closed; starter policies are the constructive foundational equivalent of the radical right’s destructive wedge policies. Starter policies would directly include the adjustment of tax thresholds and UC tapers to ease income retention by the low paid and the reworking of the English housing grant system to incentivise the construction of social (not affordable) housing, which offers secure tenure and low rents. The acute cost of living crisis is also an opportunity on the income side to re-legitimise lump sum transfers, especially in the form of uplifts in weekly benefits for the poorest and increases in non-tapered universal benefits for children and older people. Then, on public services, make incomes go further by expanding free or cheap public services like school meals, local buses, gyms and swimming pools.
The existing tax system is, then, a fundamental constraint on the more generous funding of foundational services and social infrastructure. But, there are starter policies which could begin to make a difference. Extending social insurance as a form of hypothecated taxation could begin to establish a connection between paying taxation and getting benefits in a system which works explicitly by cross-subsidising bad risks. Household net wealth is now approaching ten times GDP, owing to unearned capital gains on property and pension assets, yet taxes on wealth raise less than 10 per cent of UK tax revenue. A modest move into taxing wealth would involve taxing unearned gains on house property at point of sale or inheritance; and revisiting issues about taxing imputed gains which have not been discussed since the abolition of schedule A for owner occupiers in 1960.
The inevitable Westminster politician’s question is about how such adaptive reuse of existing mechanisms and structures could be reconciled with winning elections, when the electorate has no understanding of liveability issues and linkages. In response, the bad news is that democratic electorates can be superficial and inattentive on the drivers of liveability; the good news is that the same electorates are well meaning and emotionally engaged by some household economy objectives.
UK general elections are won and lost on party narratives and national moods, so the offer of responsible liveability policies is not a sure-fire election winner. There is nothing new about this. In the 1959 general election, voters rejected Labour, which offered a National Superannuation Scheme with retirement on half pay for all except the low paid, who would get two thirds. Voters returned the Tories, whose offer was, in effect, low flat-rate benefits and private pensions for half the workforce. The same electorate neither knew nor cared when, in its next term, the Tory government stopped the public purchase of land at unimproved value and, incidentally, completely undermined the business model of the new town development corporations.
At the same time, electorates will buy into many household economy objectives which are then put above and beyond party politics. Archbishop Temple played on this in 1942–3 when he wrote of ‘every child’s’ entitlement to decent housing and education for development. And almost eighty years later, in the early stages of the Covid pandemic, Marcus Rashford tapped the same sensibility when campaigning that ‘no child should go hungry in this country’. Any electoral campaign for liveability needs to be fronted with compassionate policies—not only for children, but also for the carers, sick and disabled. Such policies wrong-foot political opponents and can provide cover for more technical starter policies.
If liveability could in this way be made electorally presentable, it would only expose an underlying problem: the Labour Party (like many European social democratic parties) has lost its old electoral base in the organised working class and now struggles to win a majority of parliamentary seats, regardless of narrative and policy offer. Labour is in with a chance of Westminster power, because the UK’s first past the post electoral system has prolonged the life of a two-party system and centre left/centre right alternation in UK government; but the corollary is that winners have no guarantee of a second term. On this basis, Labour should look towards what it can do at the lower levels where it has reliable majorities in the large English cities and in Wales.
Any Labour general election narrative would be boosted by performative success at these levels, which would in a ‘show and tell’ way make its Westminster promises much more credible. Regrettably, more power for English city mayors and three-nation devolution has so far had disappointing results, because these administrations have generally committed to mainstream aims and policy levers with their limited powers and resources. But, in Wales, radicalism is incubating around an emerging liveability agenda, which is both encouraging and unsettling, because it suggests Labour must begin to rethink politics as much as policy.
Wales is a country of splintered political agency, where Welsh government has limited powers of home rule and a need to work constructively with twenty-two local authorities, seven health boards, and many not-for-profits like housing associations and further education colleges. But the Welsh case is instructive, because much of the radical social innovation and initiative for change is coming from driver institutions outside the electoral system and party politics.
Thus, the Hywel Dda and Aneurin Bevan Health Boards are breaking with the NHS default of solving labour shortage problems by importing ‘ready-mades’ in the form of qualified staff from low-income countries; they have policies of ‘grow your own’ workforce development and have started to rework training path ways so that healthcare support workers with ambition, but few academic qualifications, can become registered nurses. Or, Clwyd Alyn housing association has a business plan ‘focussed on addressing the causes and impacts of poverty’ which is backed up by a joint venture which distributes meal packs from mobile shops in food deserts and much else.
What then of government and policy? Local authorities can join or initiate social innovation, as Flintshire has done in partnership on food with Clwyd Alyn, or as Gwynedd Council has done in initiating reform of home care for older people. Within existing budgets, the Gwynedd reform breaks with time and task rounds and flexes the care to individuals according to need, without assuming a client trajectory of greater dependence. As for Welsh government, it is beginning to rethink its role as enabler of change rather than ineffectual strategist. In the newly created Welsh Climate Change Ministry, the language is about ‘alliances for change’ to press sectoral change by organising ‘deep dives’ on issues like afforestation, town centres and renewable energy. These bring together stakeholders and experts in a round of intensive meetings to hammer out objectives and policies.
The Welsh case shows that centre-left reset starts not from front office vision, but with back office re-framing. The politics of the right are front office dominated, as the aim is to capture office with whatever electoral pitch animates a fickle and disillusioned electorate. But, the left needs prior back office work if its exercise of power is not to end in disappointment. When successive crises since 2008 have produced deepening mess, not resolution, the left can find a new foundational starting point on what’s deliverable and how. The starting point must be a paradigm change in economic thinking which instals the aim of liveability, supported by an adaptive political practice of building scaleable social innovation. The editors of the Political Quarterly ask, ‘will the everyday economy approach work for Labour?’. The foundational answer is: yes, if the Labour Party can rethink policy and politics, recognise the limits of resetting central policy levers and the potential of enabling distributed intelligence and values.
This article draws heavily on research by the authors on income and employment sponsored by Karbon Homes, a Newcastle based housing association, published in the Jobs and Liveability report cited in this article.
The authors are the principals inFoundational Economy Research Ltd which does low cost, high impact, disruptive research.