The squeeze on the squeezed middle

by Liam Byrne | 29.01.11 | in: Squeezed middle, Uncategorized

This government is determined to squeeze the squeezed middle as hard as possible to pay for a deficit reduction plan that is too far, too fast.

The governor of the Bank of England said this week that living standards are going to take an absolute hammering over the next years – the worst since the 1920s – and this morning Donald Hirsh had a fascinating description of how those working on modest earnings, doing the right thing, working hard, trying to save will be on the sharp end of the government’s budget changes. Here’s the link to an article earlier in the year by my former colleague at No 10 Gavin Kelly, elaborating on the same theme.

Below is the transcript from this morning’s Radio 4 Today programme interview;

Donald Hirsch, Centre for Research in Social Policy, Loughborough University

BBC Radio 4 – Today Programme – 0840 am

Friday, 28 January 2011

Speakers         John Humphrys

JH: This country is facing the biggest squeeze in its living standards since the 1920s. That much we know, at least we are told, and we know why it’s happening: A combination of lower incomes and rising inflation. But who’s being hit the hardest? Here’s Mervyn Kholer of Age UK.

MK: The issue for pensioners is that they don’t necessarily buy the same goods that are measured on behalf of all of us in the retail price index. Pensioners are spending much more of their money on food and on fuel and basic essentials, whereas the price of electronic goods has come down quite significantly. So, when inflation, as it is now, is on the basic products like food and fuel, pensioners really do feel squeezed and badly represented by the retail price index

JH: So, old people are the worst hit. Well, not according to Alison Garnham, the chief executive of the Child Poverty Action Group.

AG: Families with children on the lowest incomes are going to be hardest by inflation. Their benefits are going to be cut by £18 billion. One of the biggest cuts, of £5.6 billion, is changing the way benefits are uprated by moving from the retail price index to the consumer price index. What that means is that their incomes are going to be on a downward escalator from now on compared to prices, which will be on an upward escalator. There is going to be a yawning gap opening up between the incomes of poor families and what they need to spend their money on.

JH: So, two views: it’s older people, it’s younger people, young families in particular. Let’s see if Donald Hirsch from the Centre of Research in Social Policy at Loughborough University, who has written a report on child poverty for the Joseph Rowntree Foundation, can help us with this. Good morning to you.

DH: Good morning.

JH: Who’s right?

DH: They are both right. It’s people on low incomes. Old people who are going on cruises and spending a lot on electronic goods wouldn’t have that happening, but it is really systematically people who are on a basic standard of living.  We’ve calculated they have actually got 10% worse off in the last decade if they are only relying in these consumer price index rises in their incomes.

JH: Let’s be a little more specific about this because some people, including the leader of the Labour party talk about the squeezed middle class. What sort of income brackets are we talking about?

DH: There is certainly, if you like, a squeezed lower middle. It depends really on the size of your family, but someone who has got a significant sized family, say a couple with two children, if only one person is earning, about £30,000 to afford the basics really of a minimum acceptable living standard, whereas if you are talking about a single person it’s more like about half that, about £14,000. And those are the people who are really being squeezed because what both of those people said is true, which is that the basket of goods that they consume is getting expensive more quickly than a general basket.

JH: But we heard from Age Concern there that – or Age UK as I think they are called now – that it is actually rather different for older people because they have to buy the basics and it’s the basics that are going up.

DH: That’s right. Really, I think the government needs to think very carefully about the incomes that it has sway over, that includes pensions. But it also includes low wages through things like the minimum wage and it also of course benefits for those families with children.

JH: But if you are poorer, you keep your benefits – your child benefit.

DH: You keep your benefits but if you have another period of ten years or so where every year the uprating is one per cent less than inflation then you end up 10% worse off.

JH: Yeah, over 10 years, but over one year it’s one per cent. I mean are these – the thing I’m trying to get at – are these significant differences or are they relatively small so you may have to cut back but you have to cut back very little indeed, or are we talking something significant in your view?

DH: John, the point is that these are long-term and cumulative. I’ve said that it’s already over the last decade happened and it’s continued, and yes, one per cent in one year isn’t very much. But if a generation from now people are 20% worse off, that is significant. The reason why that’s important is because there are some long-term factors in the international economy, the rise in commodity prices, which will continue because of world demand and because of the squeeze on energy and so on.


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