Articles

28 February 2011

Sitting in the middle, Public Finance

Yesterday at the Resolution Foundation we launched a wide-ranging investigation into the pressures now facing low-to-middle earners. The Commission on Living Standards will focus on the long-term economic trends that are changing the reality of life for those on low-to-middle incomes in Britain, writes James Plunkett

It will bring together leading thinkers, from major employers to top economists, to look at a wide range of trends, from pay and employment to the cost of living. Its aim is to bring much greater definition to a debate than can prove elusive – think the ‘squeezed middle’ and ‘alarm clock Britain’ – and, ultimately, to sketch out a view of what can be done.

That aspect of the Commission’s work – thinking about responses to the problem – won’t just mean making recommendations to government. Employers and third sector organisations will have an important role to play in raising living standards in the decades ahead. But two big parts of the work will speak directly to how the role of government may need to change in the coming years: the question of how we reform the tax-benefit system to ease pressures on low-to-middle earners, and that of how public services can give greater support to families to raise their own living standards.

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Three charts that complicate a simple focus on growth, Spectator Coffee House

GDP growth figures have become the barometer of choice for commentators trying to tell the political weather – a good measure of how the public will eventually fall in the faceoff between Osborne and Balls. The story goes that a return to sustained growth will mean a return to rising living standards. That means a vindication of the government’s position, and a victory for the Chancellor.

As a simple story, that makes sense if the pressures now facing Britain’s households are straightforwardly growth-related – if, in other words, we’re in a post-recession hangover that will vanish when growth returns.

But there’s now mounting evidence of a deeper problem for living standards in the UK economy. Take the chart below. It shows long-term trends in UK median wages. It reveals that stagnant wages didn’t start with the 2008-09 recession, but began as far back as 2003, when GDP growth was still strong.

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