Britain’s ‘just managing’ families have experienced a 13 year income squeeze  

Published on Incomes and Inequality

PM right to focus on families put under pressure by weak income growth and rising costs

An unprecedented pay squeeze, rising housing costs and the added financial pressure of having children mean that the typical incomes of ‘just managing’ families are lower than they were over a decade ago – highlighting why the new Prime Minister has been right to focus on such families.

This is according to a new Resolution Foundation report, published later today (Thursday) ahead of the Conservative Party conference, that assesses the stresses and strains of the UK’s ‘just managing’ families that the new Prime Minister has said she wants to prioritise support for.

The report identifies six million ‘just managing’ families – working age households on low to middle incomes – spread right across Britain and concentrated in areas as diverse as Pendle in Lancashire, Sandwell in the Midlands and North Devon.

All of those families have at least one person in work, and most work full-time, but they are under-represented in higher paying jobs. Despite accounting for a third of the working population, just one in five professional roles are taken by employees from ‘just managing’ households. They are also half as likely to have a degree as the rest of the population.

However, not all ‘just managing’ families are low earners. Some have higher salaries – up to £50,000 in the case of larger families – but still struggle to cope with the additional cost pressures of having children.

While the income of ‘just managing’ families is principally wages from work, they are often topped up by welfare support because they account for two-thirds of all working families with children in receipt of tax credits. This has left them doubly exposed to Britain’s earnings squeeze and cuts in welfare support to working families, says the Foundation. Many also find it harder to improve their incomes, keeping just 27p of each additional pound earned if they pay tax and receive tax credits.

Rising house prices have pushed home ownership further and further out of reach for ‘just managing’ families. As recently as 1995, they were more than twice as likely to own their own home than rent privately. Today, the reverse is true. The resulting increase in housing costs means that just managing households now spend a quarter (24 per cent) of their income on housing.

Taking these latest trends together, the report finds that the typical after housing cost incomes of ‘just managing’ families are lower than they were in 2002. This squeeze means that such families now typically spend the entirety of their income, with no money left aside for saving. In fact over two-thirds of ‘just managing’ families have less than a month’s income worth of saving.

The Foundation says that the acute stresses and strains of ‘just managing’ families shows why the Prime Minister is absolutely right to prioritise support for them. However, with many of these problems – from falling home ownership and chronic under-saving to the struggle of escaping low pay – having built up over decades not years, reversing their family misfortunes will need to be a central task of government if substantial progress is to be made.

Torsten Bell, Director of the Resolution Foundation said: 

“The Prime Minister is absolutely right to focus on the millions of families across Britain who are just managing to get by. Improving the jobs, housing and financial support for this groups is the central task in persuading people that Britain works for them once again.

“But tackling the big living standards issues these families face will require serious and lasting focus for this government, given the huge competing demand of delivering Brexit. That task should start in Birmingham next week.”

David Finch, Senior Economic Analyst at the Resolution Foundation, said:

“Millions of ‘just managing’ millions of households have seen their household finances stretched over the last decade. As well as experiencing an unprecedented squeeze on their earnings, many have found it near on impossible to get on the housing ladder.

“This switch from owning to renting means that ‘just managing’ families are now having to set aside a quarter of their income on housing. As a result they have suffered over a decade of lost income growth.

“Many of the problems families face – from falling home ownership and disappearing career ladders – are very deep rooted. Reversing these family misfortunes is a huge task, but the right one to focus on.”

Notes to Editors

  • The Resolution Foundation has defined ‘just managing’ as low and middle income families of working age, not reliant on benefits and not in the top half of the income distribution.
  • In her first statement as Prime Minister, Theresa May said: “If you’re from an ordinary working class family, life is much harder than many people in Westminster realise. You have a job but you don’t always have job security. You have your own home, but you worry about paying a mortgage. You can just about manage but you worry about the cost of living and getting your kids into a good school. If you’re one of those families, if you’re just managing, I want to address you directly.”
  • Home ownership among ‘just managing’ households has fallen from 59 per cent in 1995 to 26 per cent in 2015. Over the same period, private renting has increased from 22 per cent to 56 per cent.

Changing income for a selection of low-to-middle income households, 2010 to 2016