Never had it so squeezed

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Even in the boom years, a large proportion of the population never shared the proceeds of growth. That’s even less likely today as austerity really hits home

Mired as we are in a fifth year of economic crisis and austerity, it’s easy to forget that not long ago we’d enjoyed fifteen sustained years of economic growth.

But it may not be just the severity of the downturn that explains why the good times feel so distant: for many of us, the growth years were not quite as rewarding as we once thought. Prior to the big squeeze, Britain was increasingly divided, and most of us were on the wrong side of the chasm.

The Resolution Foundation’s annual Squeezed Britain report, published today, highlights the extent to which this skewed growth favoured a minority at the very top of society, leaving those on low and modest incomes particularly exposed to the consequences of the subsequent downturn.

For every additional £1 of pre-tax and benefit income generated by working-age households between 1994-95 and 2007-08, those in the top 1 per cent alone accounted for 13p. In contrast, the economic growth of the 2000s produced little or no improvement in real-terms earnings for millions of households on low, middle and above-middle incomes.

Of course, incomes have been hit across the entire distribution range since 2008, with many of the super-rich experiencing some of the biggest cash losses. And the tax and benefit system has gone some way towards countering the growing inequality of income.

Nevertheless even if measured after tax, the bottom half of households took home just 28 per cent of all working-age household income in 2010-11, barely more than the 26 per cent accounted for by the richest tenth.

For many of the 10 million adults living in low to middle income households, the outcome of this decade of stagnation and downturn is a life lived close to the economic edge, with inadequate savings and little prospect of meeting many of the aspirations that once seemed to form an intrinsic part of the bargain between workers and society at large.

Two-thirds struggle to meet day-to-day bills, two-thirds have less than one-month’s income in savings and nearly half are unable to afford a holiday away from home each year. Faced with the prospect of having to save for 22 years to raise a typical first time buyer deposit, a majority of those aged under-35 now live in private rented accommodation.

With tax credit spending set to continue falling, improvements in the living standards of those on low to middle incomes will be increasingly dependent in the coming decade on employment outcomes – both getting more people in the household into work and raising their pay.

There may be some cause for optimism, with the jobs market having been surprisingly robust given the scale of decline in GDP. However, unemployment and under-employment remain serious problems and, crucially, typical wages are set to continue to be outstripped by the rising cost of living for at least another year or two.

Population trends and job losses in the public sector – with the Insttitute for Fiscal Studies suggesting that the figure could top 1 million by 2017-18 – mean that the private sector must continue to run up a down escalator to close the jobs gap.

Government can help by pursuing policies that support women and older workers into employment, with a focus on childcare and social care for example.  And it is also worth considering what more can be done around the National Minimum Wage and the Living Wage.

What’s clear is that doing nothing is not really an option. Setting low to middle income households on the road to higher living standards will require not just economic growth, but a more equitable share of the gains of that growth than was seen prior to the recession.

Matthew Whittaker is senior economist at the Resolution Foundation.

2 comments on Never had it so squeezed

  1. Responder says:

    Very interesting analysis of a group that is woefully underepresented in the media and government. The impact of public sector job loss is also very significant for this sector of the population, often replacing secure employment with part-time/temporary work. This Insecurity is one of the most significant contributors to the depression of economic activity. This also explains why economists are so often proven to be over-optimistic in their projections of economic activity because they tend to belong to, and mix with, the people on the lucky side of Matthew’s ‘chasm’.

  2. David Hill says:

    A good article but not until economists understand that there is a real world out there and stimuli is just that and no more, shall we in this country start to realise that we have to totally re-engineer our economic thinking and policy mindsets. In this respect the UK will never find a growth model of any meaningful result with present mindsets, as our political elite and their advisers do not understand the basic economics of the evolving new world order. Indeed they look for something that is not there within their understanding, as their thinking is totally absorbed with the past and where this will not work in the future. Instead of looking long-term for something that would eventually be really meaningful they look to the bog standard quick fixers that now are as extinct as the dinosaur. Before they were around but no more as the new world order shows its increasing face. Unfortunately our politicians and their advisers are blind to all this and where they simply rely upon hope. Unfortunately again, hope is no longer an option for UK plc. Once our political masters and their tame advisers realise that they are passed their sell-by-date, we might see a change that builds a solid and robust economy, but not before. The problem also is that the present stagnant thinking is that which got us all into this horrible mess in the first place and where in physical terms, nothing has changed with their thinking. Our economic fundamentals are all wrong now and the sooner our leaders realise that this is our greatest problem inhibiting economic growth, the sooner we can start thinking in new terms that will spawn future economic dynamism. Unfortunately still again, this will never really happen as those who are in charge are the ones who are simply not opening up their minds to those who have the solutions. The reason, they are programmed to only accept their own wisdom that will take our nation deeper and deeper into economic oblivion over the next two decades. A sorry state of affairs, but where the elitist system never allows we mere mortals to see what real fools they really are. Indeed they would keep face no matter what and even if the UK went down the proverbial drain. That is what is wrong with our leadership today and all backed up by their vested interests and so-called intelligent and wise men. Nothing could be further away from the truth as history has shown so clearly over the last quarter of a century and especially the last decade. For if these people had the answers, this nation of ours would be outperforming all others. The reason again, we are the most innovative people in the world according to international research (Japan & Germany), but where this greatest strength of ours is totally stifled by our political thinking and dire economic strategy that is constantly thought up by the government’s ill-informed advisers. For the UK’s economic salvation lies totally in the hands of delivery and for this to happen, the politicians have to stand back, think differently for a change and realise that this can only come from a structured creative infrastructure where all our people’s incredible thinking can flourish and solve our economic woes and dilemma. Nothing less will do and where the history of S&T tells us that this is the only way. Unfortunately yet again, politicians and their astute advisers do not know what I am talking about and have not a clue. That is their greatest threat to any future meaningful existence and why I say that things can only go from bad to worse over the years ahead with the same old thinking. The same old thinking that has got to where we are today, a nation in decline and increasing disarray. Oh how I wish that they would open up their minds for once.

    Dr David Hill
    World Innovation Foundation

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