It was the Labour leader, Ed Miliband, who brought Britain's "squeezed middle" to public attention. The term resonated in a way that suggested he was on to something, and politicians of all stripes have since rushed to voice concern about those who work hard and play by the rules but are left with little to show for it.
As the Resolution Foundation, a London-based think-tank, demonstrated yesterday in the final report of its Commission on Living Standards, the squeezed middle is no figment of the political imagination. The proceeds of the economic growth Britain enjoyed in the early years of this century went almost exclusively to professionals and high-earners. The rest could keep pace only by increasing their working hours, or borrowing – and we all know where that led.
To an extent, though only to an extent, the plight of lower earners was softened by the Labour government's working tax credits. But the cost of these has ballooned to the point where a further increase will be unaffordable – to any government. With the number of second earners (often mothers) entering the workplace stalling, households cutting back on borrowing and higher working tax credits not an option, what, if anything, can be done to ensure that the benefits of growth – when it returns, as it surely must – are distributed more evenly than they were before?
This is the central question the broadly-based Commission on Living Standards asked, and it is one that every political party must address in the run-up to the next election. The UK has been slow to acknowledge that it has become, in many respects, a low-wage, low-productivity economy. Our higher growth rates, relative to other European economies, tended to conceal this awkward fact. And, without reasonable hope that they will share in the proceeds of growth next time around, lower earners could be forgiven for asking why they should join what needs to be a national effort. This is the practical aspect, but it is a fundamental matter of social justice, too.
The report's recommendations deserve to be taken seriously. They include the provision of cheaper and more flexible childcare; better skills to equip people for so-called intermediate jobs, and a review of employers to establish which sectors have been essentially relying on working tax credits to subsidise wages they could afford to raise. While each change would make only a slight difference, together – the commission calculates – they could significantly raise the living standards of the lower-paid.
To recoup the £3.5bn or so it estimates these measures would cost, the commission proposes lowering the ceiling on pension tax relief; means-testing universal pensioner benefits (such as winter fuel allowance) and requiring workers of pensionable age to pay National Insurance. We find nothing to take exception to here, and much to commend in the lessons the commission has drawn from other European practice, which is often neglected in favour of US models which are rarely as applicable as their advocates believe.
There are broader questions that demand further scrutiny. One concerns the role of working tax credits which, while laudable in intent, effectively allowed employers to keep pay lower than they might otherwise have done. Another relates to the organisation and funding of childcare in this country in an age when the expectation is that both parents will work.
With the squeezed middle thus defined and measures identified that could make it a little less squeezed, the onus is on the politicians to act – or explain why they will not.Reuse content