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The middle hasn't been squeezed as much as you think

The middle 20 per cent of working age households in 2011-12 had on average the same real-terms income as four years before.

Today we publish Riders on the Storm our new report on middle income households. But you know their story, right? The operative verb is to squeeze, or to be squeezed. Yet the data we've used - a panel survey conducted by researchers from the University of Essex for the past 20 years - shows something different.

The middle 20 per cent of working age households in 2011-12 (the latest survey data available) had on average the same income in real terms as four years ago. In other words, even in the teeth of the greatest recession in a century, their income wasn't squeezed, though it did stop increasing. It gets better, literally. Start at the other end in 2007-08 and two fifths of the middle income households moved up into the 40 per cent of the distribution that was above them. Around the same number stayed where they were in the middle 20 per cent. The rest moved down.

But how can this be? It's been proved definitively that real incomes are falling. The reason is that most work on these issues compares snapshots taken at different times except they are snapshots without the same people in them. We, too, found that the middle in 2011 had lower incomes than the middle in 2007. But those two snapshots of the middle don't contain the same people. As I said in the paragraph before, only around two fifths of the middle stayed in the middle over those four years.

To compare the two different snapshots is like looking at family photos and saying "Wow, auntie has really changed", except in the time between when the two photos were taken your uncle has divorced and remarried. This is why we chose to look at what happens if you keep the same people in the snapshot.

There are other problems with the typical approaches in this area too. Take this series of incomes: 3, 3, 5, 7, 20. Some of the work done by others focuses on the median income. The median in this series is 5. Imagine that we leave this series alone for four years and then come back to it. The person on 7 has retired, to be replaced by a much younger person earning 4. The new series is: 3, 3, 4, 5, 20. Suddenly the median has dropped from 5 to 4 even though no one got poorer. And, by the way, the median falls even if the person earning 5 before has popped up to 6, 7 or even 19.
Obviously it's still significant that the median is lower. But it's lower in my example because of a demographic change not because the middle was squeezed.

Right, enough of the thought experiment. Back to our findings. Track the same people and you find that their incomes haven't been squeezed. Yet they are stagnant. Despite being four years' older and despite, as our data also shows, slightly more of them being in work. So we're not getting carried away. The other reason not to put out the bunting is that the bottom 20 per cent, in particular, had a really bad time. Their level of employment had fallen. As many as a quarter were behind on their rent or mortgage.

Squeezed middle? Perhaps not. Smacked bottom? Yes, certainly.

Emran Mian is director of the Social Market Foundation

Emran Mian is director of the Social Market Foundation

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.