Squeezed middle includes top-rate taxpayers

The Guardian this morning reports that "Labour says 'squeezed middle' earns up to £50,000". The counter-intuitive result is based on analysis by the independent Institute for Fiscal Studies.

The Guardian this morning reports that “Labour says ‘squeezed middle’ earns up to £50,000“. The counter-intuitive result (median income is around £26,000) is based on analysis by the independent Institute for Fiscal Studies (IFS).

In the Guardian, Patrick Wintour writes:

“Labour today moved to define its principal target group, the “squeezed middle”, by that saying such voters are people on an income of between £16,000 and £40,000-£50,000. The definition was given by Liam Byrne, charged with overseeing the party’s policy process by Ed Miliband…”

Analysis carried out for the Labour party by the IFS shows that couples with only one earner can pay the top rate of income tax and still fall just above or below the median when calculated on a household basis.

The study assumes that there is one earner on £44,000 who is contracted into the state pension. It shows that, after tax and benefits, couples with two children will fall in either the fifth or sixth income decile (i.e. just above or below median household income). Couples of this kind with one child will fall in the sixth or seventh decile while couples with no children fall in the wealthier eighth decile.

The findings support Labour leader Ed Miliband’s remarks on Friday – criticised by Nick Robinson as “deliberately vague” – that the “squeezed middle” constituted:

“those not on six-figure salaries, who are in the middle of the income distribution…”

The analysis shows that there are families in the middle of the income distribution who will be affected by the Tories’ policy of removing child benefit for top-rate taxpayers – undermining an argument made by The Times’ Danny Finkelstein who wrote last week:

“The median earner in Britain pulls in around £26,000 a year. In other words, half of earners are paid less than £26,000 and half more. Only 10 per cent of taxpayers have incomes above £44,000 a year and therefore pay tax at the higher rate…

withdrawing child benefit from higher-rate taxpayers is not a squeeze on the middle.”

Labour’s definition is broader than that used by the Resolution Foundation think tank which produced a report last week looking at people between the second and fifth deciles (i.e. below the median) earning £12,000 to £30,000.

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11 Responses to “Squeezed middle includes top-rate taxpayers”

  1. Laura

    RT @leftfootfwd: Squeezed middle includes top-rate taxpayers http://bit.ly/hin2Ua

  2. Jack

    standard case of people getting earnings and (household) incomes mixed up.

  3. Alan W

    Will – I think a slight change in terminology is called for here.

    People earning £44K are not “top-rate taxpayers” anymore. They’re middle-rate taxpayers.

    The phrase “top-rate taxpayers” should now only apply to those earning over £150K.

    This may seem pedantic, but I think it’s an important shift to make, particularly if Labour intend to keep the 50% rate for the long term. Language can be a powerful tool in shaping public attitudes. The right understand this all to well; the left somewhat less so.

  4. Mister Jabberwock

    Will,

    I must be missing something, or misunderstanding something at least.

    You say that the couple with no children in the eighth decile has an income net of tax and benefits of £30,852 (from your analysis sheet) and the couple with two children have a net income of £33,148 yet are in the 5th or 6th decile.

    Well, by definition someone on a lower household income must be in a lower or equal decile of household incomes. Not as you say here a higher decile.

    It must mean that you are looking at two or more different populations when calculating the applicable decile.

    Can you explain as it is pretty fundamental to understanding the post.

  5. Jack

    Mister Jabberwock – equivalisation.
    see HBAI DWP publication (http://statistics.dwp.gov.uk/asd/index.php?page=hbai)

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