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Income gap is set to grow – leaving low and middle earners further behind

Yesterday Labour leader Ed Miliband made a renewed pledge to give greater priority to Britain’s ‘low and middle income families’. This follows Bank of England Governor Mervyn King’s recent warning that real take-home pay has been stagnant for the last six years (pdf).

But there is nothing new about such a squeeze. Since the end of the 1970s, living standards for most of the workforce have fallen behind increases in wider prosperity. The winners have been the very rich and high-paid professionals. The losers have been those on low and middle incomes, especially those of working age. 

There are three main reasons:

Rise in gross weekly earnings, full-time males

This income squeeze accounts for two key trends in the last three decades. First, a doubling in the level of poverty. Second, an increase in the numbers of what US sociologist Katherine Newman calls the ‘near-poor’: a group sitting above the poverty line, but neither comfortable nor secure.

Labour took some measures to mitigate these trends. The introduction of the minimum wage and the system of tax credits built a stronger floor at the bottom. But these measures did little more than hold the line. Poverty fell a little on Labour’s watch, while inequality rose slightly. This was only achieved by much higher levels of spending on benefits. Incomes, pre- and post-tax, in contrast, rose much more sharply for those at the top.

Now, with a fragile employment outlook and rising inflation, real wages are likely to do little better than stagnate even when sustained recovery arrives. The income gap is set to widen further.

Stewart Lansley is the author of Unfair to Middling, TUC Economic Report, 2009

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