Yesterday at the Resolution Foundation we launched a wide-ranging investigation into the pressures now facing low-to-middle earners. The Commission on Living Standards will focus on the long-term economic trends that are changing the reality of life for those on low-to-middle incomes in Britain.
It will bring together leading thinkers, from major employers to top economists, to look at a wide range of trends, from pay and employment to the cost of living. Its aim is to bring much greater definition to a debate than can prove elusive – think the ‘squeezed middle’ and ‘alarm clock Britain’ – and, ultimately, to sketch out a view of what can be done.
That aspect of the Commission’s work – thinking about responses to the problem – won’t just mean making recommendations to government. Employers and third sector organisations will have an important role to play in raising living standards in the decades ahead. But two big parts of the work will speak directly to how the role of government may need to change in the coming years: the question of how we reform the tax-benefit system to ease pressures on low-to-middle earners, and that of how public services can give greater support to families to raise their own living standards.
In both areas, recent trends in our labour market have had a dramatic effect on the fitness of current approaches. First, in the case of the tax-benefit system, government has found itself swimming against the current of rising inequality. From 1977 to 2009, the share of national wages going to low-to-middle earners fell from 29.5 percent to 21.5 percent, but over the same period, the group’s share of final incomes – after taking account of taxes and benefits – fell less quickly, from 33.6 percent to 29.4 percent. As a result, the gap between the group’s share of original and final income has risen from 4.1 percentage points in 1977 to 7.8 percentage points today. That reflects a tax-benefit system working ever harder to offset rising inequality, with government responding to poor wage performance in the bottom half, in part, by supplementing incomes. The question that raises is clear: if trends in inequality continue, how sustainable is such an approach in the long-term?
Second, when it comes to public services, trends in working patterns are questioning the old order of government priorities. Rising female employment was a key driver of household living standards in the latter part of the twentieth century; the proportion of women who are economically active rose from 59% in 1971 to 74% in 2010. The result has been a significant increase in the number of dual-earning and working-single-parent households – and a boom in the demand for childcare. The size of the UK childcare market rose almost fivefold from 1990 to 2007.
Now, as our ageing society adds another layer to caring responsibilities – by 2025, one in 10 people will be over 75 – families will need new levels of support if they’re to sustain the working strategies they’ve now adopted. Services like childcare and elderly care, once supplemental, are quickly becoming essential. Yet low-to-middle earners – the group that benefit more from public services than any other – still often find themselves above cut-off points for key aspects of childcare and ageing-related support, and below the ability to afford private provision.
We don’t yet have answers to these challenges. The Commission has no pre-decided list of conclusions to be rubber stamped in 18 months time. Its work will be led by evidence, and informed by ideas from across the political spectrum. But one thing is already clear: when it comes to government’s role in supporting rising living standards in the decades ahead, we’re in need of new thinking. From the perspective of a low-to-middle earner, today’s economy looks very different to the economy of thirty years ago. In some respects, government’s role looks strangely similar. In the coming years, it will need to catch up.
James Plunkett is secretary to the Commission on Living Standards. If you are interested in the work of the Commission, you can reach him at [email protected] or on Twitter @jamestplunkett
