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Squeezed middle must wait another decade for rise in living standards Squeezed middle must wait another decade for rise in living standards
(7 months later)
Britain's low to middle income families are unlikely to see their living standards return to pre-recession levels for at least another 10 years, the Resolution Foundation thinktank warns .Britain's low to middle income families are unlikely to see their living standards return to pre-recession levels for at least another 10 years, the Resolution Foundation thinktank warns .
Its report, Squeezed Britain 2013, shows that if low to middle earnings rose by the 1.1% a year above inflation achieved in the past, average annual household incomes in this group would take until 2023 to reach £22,000 – the equivalent of where they stood in 2008.Its report, Squeezed Britain 2013, shows that if low to middle earnings rose by the 1.1% a year above inflation achieved in the past, average annual household incomes in this group would take until 2023 to reach £22,000 – the equivalent of where they stood in 2008.
The Foundation points out that this group's average earnings might now have reached £27,500 but for the downturn since 2008. To reach that level over the next decade would require annual real earnings growth of 3.3%.The Foundation points out that this group's average earnings might now have reached £27,500 but for the downturn since 2008. To reach that level over the next decade would require annual real earnings growth of 3.3%.
The foundation says such an increase in earnings is unattainable based on current projections and past experience. It points out that the Office for Budget Responsibility, the government's forecaster, predicts average real earnings will continue to fall into 2014 at the same time as support from tax credits and benefits is due to decline.The foundation says such an increase in earnings is unattainable based on current projections and past experience. It points out that the Office for Budget Responsibility, the government's forecaster, predicts average real earnings will continue to fall into 2014 at the same time as support from tax credits and benefits is due to decline.
In another extraordinary finding the foundation also says that from 1994-95 to 2009-10 the top 1% of earners accounted for the 15% of the growth in income from employment and investments, while the bottom 50% accounted for another 15%. It says the last year has shown a decline in inequality.In another extraordinary finding the foundation also says that from 1994-95 to 2009-10 the top 1% of earners accounted for the 15% of the growth in income from employment and investments, while the bottom 50% accounted for another 15%. It says the last year has shown a decline in inequality.
The report includes new polling conducted by Ipsos MORI showing voters divided about whether growth will return soon. More than a third (36%) do not believe the economy will be growing again by 2015, while 47% think it will be.The report includes new polling conducted by Ipsos MORI showing voters divided about whether growth will return soon. More than a third (36%) do not believe the economy will be growing again by 2015, while 47% think it will be.
Four in 10 people do not expect to be better off in 2015 than today, compared with a similar number (42%) who think they will be. Nearly seven out of 10 people (68%) say they are cutting back on spending.Four in 10 people do not expect to be better off in 2015 than today, compared with a similar number (42%) who think they will be. Nearly seven out of 10 people (68%) say they are cutting back on spending.
The researchers focused on the so-called squeezed middle – the country's 10 million adults living on low to middle incomes. Their gross household incomes range from £12,000 to £41,000 depending on how many children the household includes.The researchers focused on the so-called squeezed middle – the country's 10 million adults living on low to middle incomes. Their gross household incomes range from £12,000 to £41,000 depending on how many children the household includes.
They do not include the poorest 10% of households and those who receive more than one fifth of their gross household income from means-tested benefits.They do not include the poorest 10% of households and those who receive more than one fifth of their gross household income from means-tested benefits.
The Resolution Foundation has long argued that the squeeze on the low to middle income group is not just a result of recent fiscal austerity but is a much longer-term and deeper-seated trend.The Resolution Foundation has long argued that the squeeze on the low to middle income group is not just a result of recent fiscal austerity but is a much longer-term and deeper-seated trend.
It says: "The struggle with stagnant wages, high levels of debt and a heavy reliance on rising tax credits reaches back before the financial crisis and as such it represents a major challenge for all parties. The wages of ordinary full-time workers barely grew in the five years prior to the 2008 crash and were negative for the lowest earners, despite relatively healthy economic growth."It says: "The struggle with stagnant wages, high levels of debt and a heavy reliance on rising tax credits reaches back before the financial crisis and as such it represents a major challenge for all parties. The wages of ordinary full-time workers barely grew in the five years prior to the 2008 crash and were negative for the lowest earners, despite relatively healthy economic growth."
Even workers in the top half saw their wages grow only slowly. It was only the very richest – those in the top 5% – who experienced growth of more than 1% a year.Even workers in the top half saw their wages grow only slowly. It was only the very richest – those in the top 5% – who experienced growth of more than 1% a year.
Households in the top 10% of the working-age income distribution accounted for 37% of the overall growth in gross income from employment and investments between 1994-95 and 2010-11, with the top 1% alone taking 13%. In contrast, those in the bottom half accounted for just 17% of overall income growth.Households in the top 10% of the working-age income distribution accounted for 37% of the overall growth in gross income from employment and investments between 1994-95 and 2010-11, with the top 1% alone taking 13%. In contrast, those in the bottom half accounted for just 17% of overall income growth.
The report points to major long-term changes in the housing market. For the first time in recent history the majority of those on low to middle incomes under the age of 35 live in private rented property.The report points to major long-term changes in the housing market. For the first time in recent history the majority of those on low to middle incomes under the age of 35 live in private rented property.
The report says under current circumstances it would take 22 years for a household on a low to middle income to save for an average deposit on a first-time home – in a climate of stagnant incomes and restricted mortgages.The report says under current circumstances it would take 22 years for a household on a low to middle income to save for an average deposit on a first-time home – in a climate of stagnant incomes and restricted mortgages.
The extent to which indebtedness is holding back households, and possibly a return to consumer demand is also underlined.The extent to which indebtedness is holding back households, and possibly a return to consumer demand is also underlined.
Among all households with debts in the bottom half of the income distribution, 30 per cent are "debt-loaded", that is, they spend more than a quarter of their total income on repayments – even at a time of ultra-low interest rates.Among all households with debts in the bottom half of the income distribution, 30 per cent are "debt-loaded", that is, they spend more than a quarter of their total income on repayments – even at a time of ultra-low interest rates.
Gavin Kelly, chief executive of the Resolution Foundation, said: "The next election will be about living standards yet little is known about what will be on offer.  Given that reductions in tax credits and benefits appear likely after 2015 regardless of the election outcome, it is vital that all parties bring forward ideas for supporting wage growth and helping far more people to work.Gavin Kelly, chief executive of the Resolution Foundation, said: "The next election will be about living standards yet little is known about what will be on offer.  Given that reductions in tax credits and benefits appear likely after 2015 regardless of the election outcome, it is vital that all parties bring forward ideas for supporting wage growth and helping far more people to work.
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