The squeezed muddle

By A McE

POLITICIANS, like sit-com makers, favour addressing themselves to the middle ranks of society, in the hope that enough of us identify with the category to tune in. Since the recession, however, the emphasis on the middle class as a place where aspiration thrives and stolid values of self-reliance are preserved, has been replaced by a more angsty pre-occupation with the fate of the “squeezed middle”, whose living standards are under pressure even as the economy returns to growth.

Although Ed Miliband, the leader of the Labour opposition, has clasped this group firmly to his breast, he has been cautious about defining whom he is talking about. That has been left to think-tanks to squabble about. As a rule of thumb, the new middle kingdom consists of those earning from the mid £20,000s up to around £60,000 (between about $40,000 and $100,000). They are more likely to be reliant on their own income than state hand-outs.

Now a new report from the Social Market Foundation, a think-tank, looks at the fate of middle-income households since 2007, with the intention of gauging how they have fared throughout and after the financial crash.

Contrary to the implication of political rhetoric, the squeezed middle emerges not so much as a stable group, but a shifting category. Of those who were in the middle income-distribution before the crash, 6% have now fallen to the lowest end of income distribution. But more surprisingly, given the doleful tone which surrounds the topic, just over a tenth of this group got richer in the years from 2007-2012, ending up in the top fifth of income distribution. Overall, the report says, the number of households whose income rose outnumbers those whose income fell.

That does not mean that people feel richer or even more stable in their prosperity. More people need two people in work in a household to remain in the middle-income bracket than did before 2007, which means that many single-parent households feel poorer than they did. Their budgets are stretched by fixed outgoings like fuel bills, which have got more expensive. A lot of families spend less on food or have switched to cheaper brands. They also rely more extensively on informal, rather than paid-for child care, and feel they have less disposable income.

From now until the general election in May next year, political parties are locked into an argument about which can best address such worries. While the coalition parties may well take the rap for leaving people feeling poorer (even those who, statistically, are not), Labour has most at stake as the party which has highlighted the cost of living as a distinctive pitch for support. For David Lammy, a London MP and possible mayoral candidate, who spoke at the launch of the SMF paper, the quest was for “better-quality jobs” to address this. That risks resurrecting the spectre of the Gordon Brown era, and his fruitless quest as chancellor for increased productivity.

Gavin Kelly, a former Labour advisor who is now chair of the Resolution Foundation, which analyses low- and middle-income groups, diagnoses Labour’s challenge adeptly in his New Statesmanblog. “The pitch is that the return of growth alone won’t suffice and that only sweeping economic reform is capable of restoring the golden thread between national economic recovery and family living standards.” It struggles, however, with a general “policy pessimism”, which makes voters doubt whether politicians can influence the forces of trade, globalisation and the vagaries of financial markets.

Even if the squeezed middle turns out to be more of a statistical muddle of earners moving up and down the income scale, a good number of voters do feel the pinch and continue to resent it. Perhaps wisely, they still need a lot of convincing that the election contenders, whatever their stripes, have the means to do very much about it.