Disposable income is a knotty problem. ONS figures show incomes are rising after a surge in hours worked not after inflation-busting pay rises
At the heart of the debate over pay and living standards there should be a simple question: is pay going up faster than prices?
As the government has highlighted, the answer is anything but simple.
Taking the figures for weekly pay published every month by the Office for National Statistics makes the job relatively easy. At the last measure in November, wages were rising by 0.9% and inflation, according the international standard Consumer Prices Index (CPI), was 2.1%. That's a steep fall in real incomes on the year before and reflects a trend going back to the financial crisis of deteriorating living standards.
The government says this analysis fails to account for income tax cuts and that a better understanding of real pay and disposable incomes can be seen if the figure is calculated after tax and not based on gross pay.
The analysis looks at the working population broken down into 10 income groups and says all but one are better off after after tax and after taking inflation into account.
First on the list of criticisms is the government's view that this presents a picture of an improving situation. It does not.
The Annual Survey of Hours and Earnings (ASHE) from the ONS is already eight months out of date. Since it was calculated, wage growth has been falling.
ASHE is an annualised calculation of monthly figures that some labour market economists believe is flawed. There are lots of seasonal adjustments and statistical quirks that divorce the annual figure from its weekly cousin. Setting aside those criticisms, it judged that salaries rose 2.2% from the previous year's total of 1.5%.
Since then a separate weekly pay figure has dropped from 1.4% to 0.9% – giving a clue that employers are not rewarding workers as they once were.
Then there is the judgment that CPI is a poor measure of inflation in Britain because it excludes housing costs, which distort outgoings in the UK more than other country. The Retail Prices Index is arguably a better measure of inflation, says Ken Mulkearn of Income Data Services and is still the mainstay of wage negotiations for that reason.
RPI was 2.9% in April 2013, compared to a CPI rise of 2.4%. Only the poorest two deciles in the government breakdown beat the RPI figure for April 2012 to April 2013.
Another problem for the government comes from the decision to complicate the picture and yet not include changes to other taxes and benefits. Why just income tax? If the idea is to paint an impressionistic vision of rising disposable incomes, then Labour's view that cuts in tax credits and child benefit, which disappeared in January 2013, are also relevant.
Disposable income is a knotty problem with many variables and no government is going to give even an impression of how different income groups stand.
For one, the latest ONS figures show incomes are rising after a dramatic increase in hours worked. So some people are feeling better off because they are working longer days, not after a decent, inflation-busting pay rise.
There has also been a large shift into self employment, with 500,000 more people working for themselves since 2008. The self-employed, who are not included in the government's analysis, can offset their expenses against their income and adopt all kinds of legitimate strategies to achieve a profit figure. It may not give a good guide to their disposable income and standard of living.
The government's figures also focus on a particular element of ASHE that tracks the pay of people who've been in employment for more than a year. Pay rises for this group averaged 3.1% compared to the overall 2.2% ASHE pay hike.
Mulkearn points out that the difference is acounted for by generally lower-paid people moving to jobs with fewer hours or lower pay. They drag down the average. This would tend to support the government's stance that the majority of workers improved their after-tax income in the year to last April, but only if the other factors are ignored.