Middle income America

The US economy is now almost thrice as big as in the early 1970s – and yet the typical working man finds not a dime of this transformative growth in his pay packet. At an outstanding event in London last week, the Resolution Foundation assembled experts from both sides of the Atlantic to consider the great undeclared class war which has robbed America's workforce of the fast-growing fruits of their labour for so long. Britons would do well to familiarise themselves with this tale of the 40-year squeeze, because there are chilling signs of something similar getting under way here.

In conquering the economy, America's rich have made occasional daylight raids – such as the Bush tax cuts, worth 100 times more to the million-a-year brigade than to the great bulk of the workforce. More often Mammon has triumphed by stealth: outsourcing labour, and with it responsibility for terms and conditions; capturing the committees that set bosses' pay; and darting into every space vacated by the trade unions. The cumulative effects were breathtaking. While the old promise of rising prosperity was being breached for the many, the top 1% quadrupled their disposable income. Back in the 1960s it would have been assumed that such a sustained riot of the rich would incur a revolution. In the event, cheap credit, working wives and occasional targeted tax breaks combined to allow families to eke out a niggardly increase in living standards in most years. But looking ahead, the crumbs of comfort are hard to spot: feminising the workforce is a trick that can't be pulled twice, and all that easy credit ended up crunched.

During the late 20th century, middle Britain avoided going middle America's way. Despite inequality, most of our people, most of the time, had never had it so good. 

Through the 1970s and even the 80s sizable unions helped secure decent rises, at least for those lucky enough to hang on to their jobs. Then in the late 1990s came the minimum wage and Gordon Brown's tax credits. The importance of these two interventions cannot be overstated: tax credits, in particular, accounted for the lion's share of the total rise enjoyed by many families from the middle right the way down to the bottom of the pile. But even before the slump, progress was faltering, and there is nothing to restart it in prospect. Last week, the High Pay Commission warned that we were rocketing back towards the inequality of the Oliver Twist era. Meanwhile, official figures revealed that the pay of ordinary folk was sliding – and sliding most for the most ordinary of all.

George Osborne is not totally blind to the political problems of plutocrats partying while everyone else endures parsimony – don't forget he laid the first populist glove on the non-doms. But he has neither the strategy nor the desire to narrow the gap systematically. In Tuesday's autumn statement the gesture to those of modest means will be measured in pennies off at the petrol pump – while other moves could actually pick poor pockets.

Before the election Nick Clegg seemed attuned to the squeezed middle's lot, pushing tax cuts for lower earners in deliberate contrast to Mr Brown's preoccupation with children in poverty. Now, however, his giveaways have been overwhelmed by a VAT hike and slashed tax credits.

Which leaves Ed Miliband, whose "squeezed middle" phrase has been named word of the year. He is clearly attuned to the problem, even if he has slipped towards describing the plight of "the 99%" as opposed to the "middle". The real question is how he credibly answers the wage rage, when there is no money to spend. Tax, regulation and company law could all have a role in narrowing the gap, as part of his avowed wider wish to promote productive over predatory business. But he has yet to think through how. It is high time someone explained how cash-strapped middle Britain can be saved from going the American way.

Share

Tweet

.