The New Statesman’s rolling politics blog

RSS

The “squeezed middle”: the key data

The wage squeeze, the rise in wage inequality and the coalition’s benefit cuts.

He may not have mentioned them by name, but Ed Miliband's speech today on the "cost-of-living crisis" was his most explicit pitch yet for the "squeezed middle". The speech was given to the Resolution Foundation (whose chief executive, Gavin Kelly, wrote a recent NS cover story on the "great squeeze") to mark the launch of its new Commission on Living Standards.

Here are three graphs that illustrate Miliband's key points.

1. The Wage Squeeze

In his speech, Miliband noted: "Over the last few decades less of what our economy produces has been paid out in wages – and more in profits. The gains in productivity we have seen have not been reflected in earnings." And here's the graph to back him up.

The chart below, taken from the TUC report Unfair to Middling, shows how wages fell from a postwar high of 64.5 per cent of GDP in 1975 to just 51.7 per cent in 1996. They then recovered slightly to reach 55.2 per cent in 2001 before falling back to 53.2 per cent in 2008.

A

2. Rising Wage Inequality

But, as Miliband pointed out, this is only part of the story. The past three decades have also seen a dramatic increase in earnings inequality, as middle- and low-income earners have borne the brunt of the wage squeeze.

The graph below (also from the TUC report) shows that while earnings for the 90th percentile have doubled over the past 30 years, real median earnings have risen by 56 per cent only and real earnings for the 10th percentile have risen by just 27 per cent.

A

3. The coalition's benefit cuts will make the situation worse

Combined with rising prices, falling wages and higher taxes, the government's planned benefit cuts will result in the biggest squeeze on living standards since the 1920s. As the graph below shows, the losses that families will suffer as a result far outstrip those from the abolition of the 10p tax band.

The removal of the 10p tax rate cost the average family £232, but the cut in support for childcare means half a million mothers on low to middle incomes will lose almost £500 a year on average, with the hardest-hit losing a remarkable £1,300. The plan to reduce the starting threshold for the 40p tax rate from £43,875 to £42,475 not only means that the marginal tax rate for those affected will double, but also that they will fall victim to George Osborne's raid on child benefit.

The plan to abolish the benefit for all higher-rate taxpayers means a loss of £1,055 a year for one-child families, £1,750 for those with two children and almost £2,500 for those with three children.

A

The coalition's decision to raise the income-tax threshold by £1,000 to £7,475 will benefit low-to-middle-income earners by roughly £170. But, as Kelly has pointed out, this is not enough "to offset the rise in VAT, let alone the far larger tax credit cuts". A study by Grant Thornton suggests that the VAT increase will cost each household £517 a year on average.