Andrew Grice: Miliband is mocked for championing the 'squeezed middle', but it's a potent message

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Cabinet ministers and their Labour counterparts wonder how long the dramatic events in the Arab world will dominate the front pages. They devote long hours to the Middle East rather than Middle Britain.

But with the Budget only 18 days away, political minds are turning to matters closer to home. The Conservatives would never admit it, but some fret privately that Ed Miliband is on to something by positioning Labour as the champion of the "squeezed middle" – an estimated 11 million people too well-off to get state benefits (other than tax credits) but too poor to be insulated from the impact of spending cuts.

It is easy to mock Mr Miliband as a Hampstead liberal who wants to put up taxes and will never reconnect Labour with the middle income voters it has lost. A surprising number of people in his own party seem to do so, let alone Tories and Liberal Democrats. Yet he knows that plenty of families with an annual income of around £45,000 a year do not feel well-off. He's also honest enough to admit that his "squeezed middle" offensive got off to an inauspicious start last November when he managed to give six definitions of his target group in a car crash interview on BBC Radio 4's Today programme. But, like David Cameron and his "Big Society", Mr Miliband is sticking stubbornly to his pet project.

The electoral dividend may prove richer for the Labour leader. He was better prepared when he relaunched his campaign in a speech this week on the "crisis in living standards". In another mea culpa, he suggested Labour had focused on the inequality gap between the rich and poor rather than the widening one between the rich and the huge group in the middle. Mr Miliband suspects New Labour overshot the runway in trying to reassure voters it was no longer "anti-aspirational".

Of course, banging on about the "squeezed middle" will not guarantee Mr Miliband a single vote at the 2015 general election. At first glance, his campaign is a piece of opposition politics, says little about what Labour stands for and doesn't help his party regain its lost economic credibility. The Tories and Liberal Democrats have hardly declared that they want to squeeze the middle until the pips squeak. Nick Clegg has begun a pitch to "alarm clock Britain" and, in the run-up to the Budget, Tory and Liberal Democrat ministers will remind 880,000 people on low incomes they will be taken out of income tax next month by the Chancellor George Osborne's decision last June to raise personal tax allowances by £1,000. Ministers will also remind the "squeezed middle" that many of them will benefit by £150 from a rise in child tax credit next month.

But they will struggle to generate much of a feelgood factor. The Resolution Foundation, an independent think-tank which looks at the problems facing the "not rich, not poor", calculates that this group's gains from government policies will be outweighed by other losses. For example, an income tax cut worth about £170 a year will fail to cover the impact of January's rise in VAT. Help towards childcare will be reduced, with an estimated 500,000 working mothers losing nearly £500 a year on average. Similarly, the Institute for Fiscal Studies found that the £700,000 boost to tax credits will be more than recouped by a £2.1bn clawback.

Meanwhile, about 750,000 people on the 20p in the pound tax rate may be pushed into the 40p band, which will start to bite on taxable incomes of £35,000 instead of £37,400 from next month. Unless Mr Osborne can conjure up some money to soften the blow, this group will suffer a "double whammy" in 2013, when child benefit is withdrawn from higher rate taxpayers. Dangerous stuff.

Mr Miliband will try to capitalise on the feelbad factor. In a speech today, he will cite research by Landsman Economics showing couples with children stand to lose more than £2,500 worth of public services each year – £1,000 more than couples without children.

The big challenge for the Labour leader will be to broaden his "squeezed middle" campaign into more than another negative attack on the Coalition so it says something positive about his party. He will aim to achieve that by claiming "the British promise" that each generation will be better off than the previous one has been broken.

Further work is required here but Mr Miliband may again be on to something. He will accuse the Coalition of devaluing and undermining traditional "public goods" such as the forests, the traditional high street and the National Health Service – surely his potential trump card. He will portray Labour as having the right values to defend such national institutions from a single-issue government obsessed with cuts, cuts and more cuts. The Tories and Liberal Democrats will mock but if it's working, it will be hurting them.

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