In the three months I’ve been working on low income households in the US, a wry smile and an emphatic “no” is the almost universal response I get to my question “does the US have any lessons for the UK?”

It is certainly true that American safety nets, where they exist at all, are more ragged than Britain’s. And antipathy towards ‘welfare’ is even more pronounced here than the ‘benefit scrounger’ tropes of the British media.

We may be out of recession but the housing market story continues to be one of doom and gloom. House prices continue to fall, the mortgage market continues to contract. While even deposit ready first-time buyers are struggling, the situation is exponentially worse for low-to-middle earners. With just 2 per cent of mortgages available at over 90% loan-to-value and no indication that the market will recover anytime soon, many low-to-middle earners are bracing themselves for a lifetime of renting: analysis in our recent audit found that, in today’s mortgage market a low-to-middle earner buying their first home would need to save 5 per cent of their net household income for 45 years to obtain a deposit.

The question, then, is whether the private rental sector (PRS) will expand to meet this need. It did in the mid 90s and 2000s, assisted by the boom of buy-to-let landlords. But the situation we face today is different: demand for private rental is likely to increase at a faster rate than it has, with Savills and the Building and Social Housing Foundation forecasting that the PRS will grow from just 13 to 20 per cent of the stock by 2020. And faced with a constrained credit market, buy-to-let landlords are unlikely to fill the gap in the same way they have in the past.

Since the emergency budget in June of this year, government policymaking has been unswervingly focused on reducing the deficit. However, the coalition has asked to be judged not just on its impact on the public finances, but also on the progress it makes in increasing social mobility.

Social mobility is undoubtedly an important issue. It can provide us with a measure of meritocratic advancement in the UK together with helping to reduce inequality. But understanding of what social mobility is and what it means for people’s life chances is still quite limited.

This article was first published on Left Foot Forward

Today’s figures from the Office for National Statistics shows that inflation rose in the UK in November, with the CPI increasing from 3.2% to 3.3% – above the government’s official target of 2% for the eleventh month in a row – and the wider RPI measure rising from 4.5% to 4.7%.

With average annual earnings growth sitting at just 2.2% in October, the persistence of above-target inflation means that a large number of households are facing falling real wages and a squeeze on their living standards.

Scratching beneath the surface reveals that some households are feeling the pinch more than others. In relation to earnings, the average growth figure is likely to overstate the reality for those in lower paid jobs, with the gap between the top and the bottom of the earnings distribution growing consistently over the last 30 years; in relation to prices, the composition of the overall inflation figure means it is again those in the lower half of the income distribution who are likely to be facing the most rapidly rising costs.

As minds turn to 2011, and the challenges of the year ahead, there is dawning recognition of the scale of the threat to household budgets. As Matthew pointed out last week, the real earnings of Britain’s low-to-middle earners fell by an eye-watering 5% last year, and today we see that RPI inflation has risen again to 4.7%, with the VAT hike still to come.

It’s in this context of falling living standards that we need to consider the impact of cuts in 2011, particularly those that will directly hit household income, such as ending EMAs (an issue which has flared into the headlines this week), and reductions in support for childcare costs through tax-credits (as yet little noticed, but destined to rise in prominence as the April start date draws near). With families already feeling the squeeze on real wages, both those changes will hurt many households, and the Government will no doubt face pressures for concessions.

This article was first published on Left Foot Forward

The 2010 ‘Annual Survey of Hours and Earnings’ data released today by the ONS shows that the median annual salary earned by all workers fell by 0.4 per cent in nominal terms from £21,310 in 2009 to £21,221 in 2010. Once inflation is taken into account (RPI increased by 5.3 per cent between April 2009 and April 2010, which is the date the ASHE survey relates to), stagnation turns to significant contraction, with the median salary falling by a sizeable 5.4 per cent.

This overall drop in part reflects the increase in part-time jobs relative to full-time since the start of the recession. However, even controlling for this, wages have fallen in real-terms: the median salary among full-time workers fell by 4.8 per cent to £25,879, while the median part-time salary dropped by 6.2 per cent to £8,519.

The American middle-class has been complaining since the 1970s about their stagnating incomes. The economic growth that the country has seen since then has gone mainly to the better off. Households at or below the middle of the income distribution have seen no significant rise in their living standards for a generation.

That certainly can't be said of the UK – yet. Here, living standards have improved considerably for most groups in recent years. However, in the past decade, we have started to look a little more like the US...

From time to time we’ll be posting pieces from the USA and elsewhere to gain international insights on the plight of low-to-middle earners. Here Sophia Parker, a Research Associate of the Foundation, sets out the growing crisis facing low-and-middle income America and considers what it means for the Obama administration.

“The problem”, declares American academic Joan C. Williams, “is that Obama eats arugula.” For Williams, the President’s major problem is that his choice of food is a ‘class act’ – a kind of cultural symbol that associates him with a professional class and an urban elite who are disliked, resented and mistrusted by ‘ordinary folk’.

The culture gap is certainly part of Obama’s problem and it will make it harder for him to reach out to the hard working Americans whose support he will badly need in 2012. But if he has any hope of bridging this culture gap, he will need to make some serious progress in tackling the dramatic economic gap that has opened up between professionals and the ‘missing middle’ in recent years...

This article was first published on Left Foot Forward

Defining the squeezed middle will be difficult – but there is a real threat to living standards for those on low to middle incomes.

Ed Miliband’s attempt to define the ‘squeezed middle’ has made some people question the point of the term. Liam Byrne tried again yesterday to pin down the concept.  But the big question remains: is the ‘squeezed middle’ just a political slogan – as meaningless as ‘the deserving majority’ – or does it refer to something real, and a big, new challenge for political leaders?

Whatever your views on the phrase itself, there is no doubt that we are now seeing a serious challenge to the living standards of those on low to middle incomes. Last week at the Resolution Foundation, we published a report – that explains those trends. It focuses, as does all of our work, on households whose incomes are too high to qualify for significant state support, but too low to escape a real battle with day-to-day living costs...