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The state of voters’ finances will affect the Government’s popularity in 2009, but for reasons exactly opposite to those most people assume; on average, families will be much better off in 2009. In fact, this year will be the best for average disposable incomes for almost a decade. Why?

The state of voters’ finances will affect the Government’s popularity in 2009, but for reasons exactly opposite to those most people assume; on average, families will be much better off in 2009. In fact, this year will be the best for average disposable incomes for almost a decade. Why?

  • Pension and benefit increases for 2009 were set at last September’s RPI of 5% but will be implemented with inflation at virtually zero
  • Other tax and benefit changes will raise incomes, particularly for families on lower incomes
  • Mortgage holders are benefiting from falling interest rates, some families being hundreds of pounds a month better off
  • Although annual pay rises will be lower this year, many increases (particularly in the public sector) were agreed when inflation was higher and any, again, even small increases will lead to real improvements in living standards when set against zero inflation
  • Overall, the modal (most frequent) average improvement in disposable income in 2009 looks like it will be around 5%, a better figure than in any year since Labour took office. What will this mean? There are three broad possibilities. First, we simply won’t notice. Worried about losing our jobs and aware that tax increases are on the way, we may use the extra income to reduce our debts but not feel any better off. Second, the contrasting outcome; there is a general feel good factor which starts to show up in the opinion polls. Third, a phenomenon of which I have written in the past – the contrast between our personal optimism and our social pessimism – will become even more profound. We will blame the Government for the general background of bad economic news but assume that we are personally responsible for our own family finances improving.

    The statistic on disposable incomes may also explain why David Cameron has decided to adopt such an aggressive and oppositional stance on the recession, even though, as many commentators have pointed out, the gap between Labour and Tory on policy substance is not as great as the rhetoric suggests. The Conservatives may judge that the biggest danger they face is public contentment in the face of rising average incomes and the possibility of the economy starting to pick up towards the end of the ear. By emphasising public debt and the position of savers Cameron is inviting the public to focus on two indicators that are unlikely to improve whatever happens in 2009.

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