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January 27, 2012 / politicsbitesize

Who are the Squeezed Middle?

Resolution Foundation ReportFor months now I have been receiving emails from the United Kingdom Parliament updating me on the progress of the Welfare Reform Bill 2010-11. The Lords aren’t happy with it so they keep throwing it back to the Commons for review: this has happened three times already. The Welfare Reform Bill has made headlines this week due to the outcry by a few of the Lords, such as Paddy Ashdown and Lord Oakeshott, and leading Bishops on calls for a cap on benefits. Their opposition to certain clauses in the Bill is derived from a concern that the cap will cause ‘unacceptable’ hardship for children, because child benefit will be included in the calculation of income for those on benefits.

However, the Lords agree that the cap is acceptable ‘in principle’. After all, it seems logical that those receiving out-of-work benefits should not obtain the same amount per week as the average weekly wage, which is what Iain Duncan Smith’s Bill is proposing. What the Secretary of State for Work and Pensions is recommending is a cap on state benefits so that they fall in line with, or below, the average wage of British workers, which has been pegged by the Government at £26,000 a year after tax. The question being banded about in parliament, and throughout the UK, is whether this cap is fair.

A YouGov poll, taken between 18th and 19th January 2012, asked people:

The average earnings of a British family is around £26,000 per year after tax. There has been a proposal to limit the maximum total welfare benefits a family can receive to this level, regardless of the number of dependents, etc. This would mean that no family would be able to receive more than £26,000 a year in benefits.

The result was overwhelmingly in favour of a cap and in fact 36% of the respondents suggested that it should be less than £20,000 a year. Since the benefits cap debate has hit the headlines many commentators and newspaper columnists have given voice to the view that those who DON’T work for a living SHOULDN’T be better off than those who DO. Mary Ann Sieghart’s view in The Independent sums this opinion up so well:

All the average tax payer is asking is that people who rely on benefits should face the same hard decisions as the rest of us … [indeed] Why should a family, without any of its members lifting a finger, be entitled to the same standard of living as the hard working families who live next door?

These ‘hard working families’ have been dubbed the squeezed middle, or those who are living on low to middle incomes (LMIs). According to a study by the Resolution Foundation, the average household wage of this group is £20,500 after tax, which is £5,500 less than the proposed cap and more in line with the answers given in the YouGov poll. The report shows that 77% of LMIs are in full-time work and 63% of them own a home, so it would seem that they aren’t doing too badly. However, 40% of their income is spent on essential bills such as mortgages, food and the running of a car, which means this group have difficulty saving and splashing out on luxury items. But what it also means is that any increase of the cost of essential goods – such as food and petrol – squeezes their incomes further.

What the Essential Guide to Squeezed Britain report outlines is the worrying fact that because prices have risen so sharply since 2010, ‘real wages are expected to fall until 2013’. If the rate of inflation continues to rise this way and incomes remain the same then the ‘annual household incomes for LMIs would be no higher in 2020 (£21,900) than at their 2007 peak’. This is a gloomy outlook for this group who are prepared to work hard to provide for their families, but in light of this report it seems that a cap on benefits is the responsible and fair thing to do.

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