The real squeezed middle could stagnate for 20 years

Joe Coward writes about the real 'squeezed middle', and details how it could take until 2020 for their income to reach the level it was in 2001.

 

Joe Coward is a research and communications assistant for Resolution Foundation

This morning Liam Byrne and David Laws launched a new Resolution Foundation report, Squeezed Britain, which sets out the economic position of the squeezed middle in forensic detail, offering some pointers towards what will be the key political issues over the next few years.

The report focuses on people on low to middle incomes, who the Resolution Foundation define as working-age households who are living largely independent of the state but with incomes below the median (middle).

This group of 10.1 million adults and 5.8 million households comprises approximately one third of the working age population, living on an average household income of £20,500 after tax.

It is now well established that low to middle income households (LMIs) are experiencing a big squeeze on living standards, and previous Resolution Foundation research has highlighted that this squeeze started long before the recession.

But this report sheds new light on how long the squeeze might last, and when incomes might recover.

It shows that, on the basis of existing forecasts from the OBR, LMI household income is expected to reach a low of £20,100 in 2014-15. But it also sets out two scenarios for what could happen beyond this period:

• If income growth returns to the strong rates recorded in the period 1996-97 to 2003-04, LMI household income would return to its 2007-08 peak by 2020-21;

• If, however, income growth returns to the weak rates recorded in the period 2003-04 to 2008-09, LMI household income would remain stagnant, creeping up to just £20,200 in 2020-21, leaving households no richer than in 2001-02.

The report also tells us how many areas of life are now being affected by this new economic environment. One key implication is that home-ownership is now out of reach for many people on low to middle incomes. In the 1980s and 1990s it typically took a first time buyer 3-5 years to save for a deposit – today it would take 22 years.

As social housing is now predominantly targeted at the most vulnerable in society (and rightly so), this means that the private rental sector is far more than a stop-gap for many low to middle income households.

Indeed, it is now the most common form of tenure for LMI households aged under 35, many of whom are raising children in the private rental sector. Despite record-low interest rates this trend shows no sign of abating.

At today’s event some policy responses were mooted – Liam Byrne hinted at current Labour thinking by suggesting that if government wants to support childcare (and female employment) it may well get a bigger bang for its buck by providing services rather than cash benefits.

Meanwhile David Laws reiterated the Liberal Democrats’ commitment to increasing personal tax allowances for the lowest paid whilst suggesting that generous tax reliefs and allowances for higher rate taxpayers could be curtailed. Wherever, the policy debate ends up, one thing’s for sure – the politics of living standards is here to stay.

See also:

When the private sector collapses for a second timeCormac Hollingsworth, January 19th 2012

In Daily Telegraph-ese, the “squeezed middle” means the very richDaniel Elton, July 28th 2011

Miliband’s “squeezed middle” message gains groundDominic Browne, March 25th 2011

Squeezed middle includes top-rate taxpayersWill Straw, November 29th 2010

Battle for the ‘squeezed middle’ rumbles onLiam R Thompson, October 13th 2010

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16 Responses to “The real squeezed middle could stagnate for 20 years”

  1. Political Planet

    The real squeezed middle could stagnate for 20 years: Joe Coward writes about the real 'squeezed middle', and de… http://t.co/zhle9t6r

  2. Pulp Ark

    The real squeezed middle could stagnate for 20… http://t.co/sWuvR2vE #Social_Justice #lmi #lower_income #middle_income #muslim #tcot #sioa

  3. Patron Press - #P2

    #UK : The real squeezed middle could stagnate for 20 years http://t.co/los2QkuX

  4. Antony Webber

    RT @leftfootfwd: The real squeezed middle could stagnate for 20 years http://t.co/s9WKvyI4

  5. Anonymous

    Still missing out the cause.

    With government debts having hit 225,000 per tax payer, the government is desperate for cash.

    So its down with services.

    Up with taxes.

    The middle gets canned.

    But you knew that. You went on the spending binge. Or if you didn’t, then what the heck were you doing in power when you were that ignorant.

  6. John Slinger

    RT @leftfootfwd: The real squeezed middle could stagnate for 20 years http://t.co/76bJQxKl > article re v important @resfoundation report

  7. Michael

    The real squeezed middle could stagnate for 20 years – http://t.co/tu2iY3vM

  8. Khlari Kundalini

    RT @leftfootfwd: The real squeezed middle could stagnate for 20 years http://t.co/lLKUX464

  9. Newsbot9

    Except, of course, there was no “binge”. Debt was lower before the crisis than Major’s government had left it.

    And this government’s policies are making sure it stays high by killing growth.

  10. ResolutionFoundation

    The real squeezed middle could stagnate for 20 years, writes @resfoundation's @joecoward: http://t.co/ZdMIMflA

  11. David

    Squeezed middle could stagnate for 20 years, writes @resfoundation's @joecoward: http://t.co/B5LUhr10 #p2 #1u #Inequality

  12. Nick Leaton

    Post how many pounds at the start, how many at the end.

    Include all those pesky off balance sheet frauds in the process.

    Given you work for the public sector, you do want your pension paid? Or is it not a debt, in which case we don’t have to pay it.

  13. Newsbot9

    Oh of course, you have to cook the comparison to ensure that your ideology wins, every time. Reality can’t be allowed to come into it. No, I’m referring to the *standard measures*, of course, not whatever crap you brew up to justify your sadism.

    And I don’t work in the public sector. I work for a company limited by guarantee.

    Pension? I can’t afford to pay into a pension. That’s something for the rich, not the poor. Moreover, even if I could, I’d have to do it entirely from my own resources to avoid the looting scam you and your 1% have going on, using pensions as a kitty to correct for your slash and burn of the economy.

  14. Mr. Sensible

    Well said, Newsbot9.

  15. Beth Hurrell

    Great blog @JoeCoward @Resfoundation RT @leftfootfwd: The real squeezed middle could stagnate for 20 years http://t.co/i6CRqIC1

  16. H. O.

    RT @leftfootfwd: The real squeezed middle could stagnate for 20 years http://t.co/6IArqjVG

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