The coming crunch

Published on Incomes and Inequality

These are interesting times here at the Resolution Foundation. We’re expanding our team, starting new projects and working in different ways to achieve practical solutions. I hope you’ll keep returning to our new and improved website over the next few weeks and months to follow what we have to say about the position of low-to-middle earners in Britain. We’re keen to know what you think.

The question of why the Foundation’s work is important is an interesting one. It’s often said that a key measure of a civilised society is how it treats its most vulnerable, a sentiment that would be widely shared across the political spectrum. But the plight of those who are not the most vulnerable but are nevertheless hard-pressed – unable to thrive in the market economy though not eligible for extensive state support – also tells us something fundamental about the health of our economy and the character of our society. The pressures faced by those on low-to-middle incomes are unique. Not uniquely difficult, but different in nature to those facing other groups. And they give rise to a particular set of questions: if you are in work are you able to earn enough to lead a decent life? What are your chances of being able to get on, build a career and earn your way into what many would describe as a ‘middle class’ lifestyle? Each year, does your life get a little easier, or does it get a bit harder to keep up, and to sustain a reasonable standard of living for your family?

Tomorrow we publish a report “Squeezed Britain” which provides an in-depth analysis of these issues. It is of course customary for research organisations to puff their own reports but I do believe this to be a landmark piece of work. It sets out in more detail than you will find anywhere else how people on low-to-middle earnings in Britain are doing. And it doesn’t make for comfortable reading.

What does it tell us? First of all that the ‘middle’ is much lower than many think, particularly those in the London media. A huge number of people in modern Britain – 11 million adults, representing one in three working age adults – live in households on incomes between £12k- £30k. On incomes like that, particularly if you have a family, life can be a real struggle. Rising costs, from transport to childcare; reduced access to credit and its increasing price; and limited savings to fall back on, all pile on the pressure. Half of the people in this group are just one pay packet away from crisis.

Our report also shows that this large group is increasingly shut out of some of the key aspirations their counterparts in previous generations found more achievable – in particular home ownership. And it points out the hard truth for low-to-middle earners: that in the coming years, things are likely to get worse before they get better. We are now on the cusp of a ‘triple crunch’ for living standards: earnings are set to rise at half the pace of recent years; prices are set to rise more quickly (and if the past is any guide, even more quickly for those on low-to-middle earnings); and key forms of state support for working families – most significantly tax-credits – are going to be cut back. Just as insecurity is creeping up the income spectrum, means-tested state support is being pushed downwards.

“Squeezed Britain” doesn’t seek to provide the answers to these problems, but it does offer the preceding step – it increases our understanding of the pressures facing low-to-middle earners, and what they mean for people’s lives. In the coming months we will embark on a new programme of work to generate a clearer account of possible solutions. For now, though, we want to ensure that there is a rigorous and even handed account of these worrying trends in living standards so that policy and political debate is better informed on this defining issue. Let us know what you think.

This blog first appeared on the CoffeeHouse blog, The Spectator