Duncan’s Economic Blog

The Real Middle Britain – Taxes, House Prices & Debt

Posted in Uncategorized by duncanseconomicblog on May 28, 2009

Last week during a debate on tax, my regular commentator Newmania said:

This now completely disenfranchised section are often found on the internet getting angry and these are the people Duncan wishes to tax into penury .Ordinary working people , who have no right ( says Duncan) to independence or even to keep much of what they earn. People who go to Garden Centres , save for holidays , convert their lofts , worry about their children.

He was wrong. These are not the people I want to tax. And he knows that. But he does, I believe, refer to what he thinks of as ‘Middle Britain’. ‘Middle Britain’, a concept beloved of both political strategists and the media at large, has always been a somewhat imprecise term.

No longer.

The TUC have today published a superb pamphlet, defining and polling ‘Middle Britain’. Go read it.

Middle Britain has become shorthand for the conservative, well-todo
citizen. Subtly and gradually, it is this different Middle Britain that has come to dominate cultural and political debate. But the original and real middle is still with us and they will still play a crucial role in the next election as a group of swing voters who will determine whether the Labour or Conservative Party forms the next government.

They define ‘Middle Britain’ in a very precise manner:

Throughout this pamphlet we assume ‘middle Britain’ to be synonymous with the group clustered around the median income in the UK. To distinguish the group from its more common use we refer to middle Britain as ‘Middle Income Britain’. To some extent the actual size of this group is arbitrary. For the purpose of this pamphlet – and to enable comparisons with other groups – we have taken ‘Middle Income Britain’ to be equivalent to the middle fifth of the population.

I can’t think of a fairer, more objective definition. Tom notes some characterisitics of this group:

*Much less likely to have had a university education
*More likely to have experienced unemployment
*Much less likely to enjoy a final salary pension scheme
*Much less likely to hold shares and have significant levels of savings

As the TUC note they tend to be:

concentrated amongst white-collar and skilled manual jobs, including; customer service administrators, dispatch clerks, retail managers, IT workers, landscape gardeners, site maintenance engineers, teaching assistants, librarians, receptionists and shop assistants.

This then is our working definition.

Two things leap out from the report.

First, how has this group faired since 1997?

They enjoyed annual rises in real take-home pay of just 1.6 per cent, well below the annual rate of economic growth over the period. This compares with 2.1 per cent for those on mean incomes and 3.9 per cent for the top one per cent. This means that over the 18- year period of Conservative governments, the real incomes of the top one per cent doubled while the incomes of households on mean incomes rose by 45 per cent and those on median incomes rose by a third. In effect, successive Conservative governments neglected the very constituency that had put them into power.

No surprises there.

Under Labour, Middle Income Britain has fared better in relation to higher income groups than under the Conservatives. Over the decade from 1996/7 to 2006/7, real median household income grew by 20 per cent while real mean household incomes grew by 23 per cent. These correspond to annual rates of 1.9 and 2.1 per cent respectively.

There is an important exception to this more even pattern of growth across incomes. Since 1997, the richest one per cent has continued the upward rise that began in the early 1980s. Over the three decades from 1979, the richest households outstripped all other groups, while households on mean incomes moved ahead of those on median incomes.

Better under Labour then, but still more to be done.

Second, what do these people think? I.e. what does actual ‘Middle Britain’ think, rather than the mythical ‘Middle Britain’ so often discussed?

They, in common with ever other quintile of income group (except the top, and then only narrowly against), support a more progressive taxation system.

tax middle britain

To me, this is key. The TUC’s ‘Middle Britain’ and Oxfam’s Freds (roughly the bottom quintile) together with quintile inbetween represent 60% of Britain. The quintile above too support progressive taxation policies. That’s 80% of the country that can be mobilised on this basis. This is crucial in light of the important debate on how we pay for the debt we are incurring in fighting the recession, the question is ‘who pays?’

There is too the broader point of why has ‘Middle Britain’ been left behind? The answer to this is unquestionably related to the buildup in consumer debt over the past decades. As the report notes:

Despite the deceleration in the rate of income growth from 2002, households, on average, maintained rising living standards at least until the end of 2007. From 2000 to 2007, consumer spending by individuals grew by £55 billion more than their income. Over the same period, the Government’s index of retail sales by volume grew by no less than 35 per cent in constant prices, more than three times as fast as disposable incomes.For a while Britons – across income groups – embarked on a mass spending spree while much of the nation appeared to drip with affluence. New shopping malls sprouted across Britain. The giant Westfield Centre in West London is the biggest urban, indoor retail outlet in western Europe, boasting no fewer than 50 restaurants and 255 shops, including flagship stores for leading designers including Dior and Tiffany. Yet in a telling symbol of the consumer bubble that was bursting across Britain, it opened its doors in November 2008, a few days after the Government announced the first quarterly downturn for 16 years.

So how was it possible to maintain spending when rises in purchasing power were slowing? The answer is by a sharp and unprecedented rise in debt.

I am increasingly thinking that there is something in Graham Turner’s argument about the power of capital and the buildup in debt. Footloose global capital and the outsourcing of jobs to lower cost countries has had the effect of driving down wages in the West.

The price of goods may have fallen as result but, as the data clearly shows, real (i.e. adjusted for lower inflation) wages have not risen as much as many expected. Capital, with ever increasing production, needed consumers to buy its goods. Workers, with lower wages, needed to maintain their consumption and way of life. The answer to both problems was simply to borrow.

One manifestation of this borrowing can be found in the rapid rise in house prices of the past decade. As I have argued before, higher house prices do not benefit society. ‘Middle Britain’ (despite being 77% home owners) would be better served by lower house prices, as would the Freds. They could borrow less to buy homes, they would be more competitive internationally, inequality would be lower, social mobility would be higher.

For all of these reasons I would offer a ringing endorsement to the conclusions of the report.

Tax:

• The Government should restate a commitment to the principle of
progressive taxation – that tax should be related to ability to pay, with
the rich paying a higher proportion of tax than the poor and the middle.
This would mean reducing the share paid by the lowest earners, a war
on tax havens and loopholes, ending higher-rate tax on pensions and a
reform of council tax.

• To reduce the excessive concentration of wealth, a higher proportion of tax revenue should come from capital taxation with a reform of inheritance tax and the realignment of income tax and capital gains tax rates.

In recent times, British society has become increasingly aspirational, with individuals aiming for improved living standards and opportunities for themselves and their children. Yet many, if not most, of those on low and middle incomes have been denied the opportunity to fulfill these extended ambitions – in housing, education and work. For many, relative opportunities in these areas have declined.

Successive governments have set out to fuel aspirations without willing the means. Now is the time to set out a new agenda that closes the gap between rising aspirations and the means to fulfilling them.

The Government is moving the right direction here, the 50p rate signals that. The Government has succeeded in raising aspirations, now we need to help meet these raised aspirations.

14 Responses

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  1. Tom P said, on May 28, 2009 at 12:48 pm

    “I am increasingly thinking that there is something in Graham Turner’s argument about the power of capital and the buildup in debt.”

    yep me too. the other book that really got me thinking about the ramifications about the shift in the balance between wages and profits is Capitalism Unleashed.

  2. newmania said, on May 28, 2009 at 1:51 pm

    Ha your conscience was stung was it Duncan.

    the TUC says their average annual pay was just under £20,000 – a “long way” from the comfortable middle-class incomes associated with middle Britain…..

    Why not try your “ Anyone over £20k gets stuffed under Labour “ approach Duncan I think you may have found a way to make the defeat even worse. Respek bruv Respek
    At such levels of income this becomes a fiendishly difficult question to tease out .
    If you were ,shall we say , a single mother supporting children on such an income then you would in effect pay no tax at all have free accommodation and enjoy the disposable income of someone on up to 75% more .
    .I have three cherubic children a small semi and an old ( but rather nifty) car , you appear to regard me as fabulously wealthy ( ha ha ) and yet magically I work every hour god sends and have not a penny. Partly because I am funding the final salary pensions enjoyed by almost all TUC members despite having to work until I die myself ( and my wife)
    Salaries vary widely over age groups and this trick of presenting such data without any reference to the curve of lifetime earnings is an old and well used Labour lie. The cost of accommodation is also a large regional variable . Combined Household income is more important each year and Benefits etc. are obviously important really , its pretty meaningless without further examination but safe to assume the same old stuff with the words “Middle England” slapped on the title to get in the Guardian

    PS
    I would hardly take anything the TUC have to says seriously anyway but I am unable to pick their Lord Haw Haw nonsense apart as the document will not down load.

    • duncanseconomicblog said, on May 28, 2009 at 2:02 pm

      Newmania,

      I am not arguing that anyone earning over £20k is rich. That’d be very silly indeed now wouldn’t it?

      What I am arguing is that there is support for more progressive taxation across the spectrum of earnings.

      I ofcourse accept that there are generational issues involved to, and that the cost of housing varies.

      What interest you is this:http://www.touchstoneblog.org.uk/2009/05/how-middle-are-you-try-the-middlebritainometer/

      Which will show exactly where you fit in to the income scale.

  3. newmania said, on May 28, 2009 at 2:42 pm

    .I `m rich , rich I tell you ! Yippeee

    I wish you were running New Labour’s campaign Duncan .To be honest this sort of stat swapping is so malleable as to be pointless you might as well leave it . The real Polls have shown solid evidence being highly tax averse over the last two years and that is likely to be more so now. The Lib Dem tax suggestion to start the pain above a household income of £75,000 had to be hurriedly dropped when it hit the voters . IHT … ? Come on were you not watching ?

    The interesting thing is that when the “Cameron project “ began , and its gestation was in Conservative circles for a long time . It was about reconciling the Conservative Party to the settled fact that a majority agreed with higher taxes for better services ….all sorts of data backed this up for years and was regularly brandished by Cameroons .
    It is an forgotten fact , that consensus had already broken down prior to the news that the era of leverage had snapped came through ,with its consequent reappraisal of Brown.
    Put it another way Brown was more unpopular when he was begrudgingly admitted to have been a good Chancellor than when he was revealed to be ..um ..less so
    Of course such things are hard to prove but surveys that consistently showed support for the Public sector were already showing a new cynical distaste for spending prior to the new era . Where does that leave Labour now ,? Well the assumption is that they are at bottom but why so . In fact the opposition is not well prepared for the current problems and was facing in precisely the wrong direction.

    • duncanseconomicblog said, on May 28, 2009 at 2:56 pm

      Glad to hear you’re rich.

      And I’d like you to run the Tory campaign. At least that we could have a genuine debate about what really matters.

      The public does support the 50p rate though, doesn’t it? And it’s easy to whip up anger about ‘public sector fat cats’ but there is equal anger about bankers. Whilst some public spending cuts are obviously do-able, the scale of what is being proposed is huge. Look at Fraser Nelson in the Telegraph today. 10% off education, defence and the home office. Cuts in the NHS.

      The public doesn’t like the idea of ‘waste’ and fair enough. I think however they do support health and education spending.

  4. Tom P said, on May 28, 2009 at 3:43 pm

    “I would hardly take anything the TUC have to says seriously anyway”

    As an ex-TUC person myself, can I ask why not? I take CBI reports seriously, I read the odd Conservative policy document, and I’ve even plugged an Osborne speech on my own blog.

    though it is a hard habit to overcome I don’t see the point in deciding what you think of a report based on who published it (note ‘published’ – TUC staff didn’t actually write this report, they commissioned it).

  5. […] The Real Middle Britain – Taxes, House Prices & Debt Duncan's Economic Blog on how the real Middle Britain shows potential majority support for a progressive response to the recession. (tags: middlebritain tuc) […]

  6. charliemarks said, on May 28, 2009 at 7:57 pm

    Newmania, considering the super-rich pay the least percentage in tax and own much of the media – it’s not that surprising that more people think they would be hit by inheritance tax than actually are.

    There’s also this dimension – when things are going well for us, we tend to forget that we depend upon other people. In the boom years, this didn’t happen so much – but now that things are getting worse more people are aware of how much we depend upon public services like the NHS, the police, the benefits system.

  7. newmania said, on May 29, 2009 at 8:38 am

    Tom
    The TUC is political organisation funds the Labour Party and is entwined with the Labour movement from its start. In fact I have vastly less objection to the Unions than to New Labour but it is not fair to pretend the CBI and the TUC are equivalent , The CBI is in fact quite powerless over its members and consequently is little more than a trade association .The TUC is a serious player on the UK political scene even now openly buys Policy .It also has a history of hard left activism and if I say nothing that emanates from it carries any weight , then I am in accord with almost everyone else in the country
    Charlie .
    On the bias of the media the poll tax funded BBC ,an organisation truly earning the title “You could not make it up” alongside state sponsored celebrity dancing competitions ( why ? why? Why ?) , it steadily assaults the conservatives from a progressive viewpoint . Its editor of social affairs was for many years Polly Toynbee . It is the fact that no-one thought this was odd that really gives you an idea of the institutional bias . Its coverage of the Common market referendum was the subject of a Survey which provided incontrovertible evidence of a wildly pro EU editorial stance and little has changed .
    The Free media’s ownership makes no difference to its content . The Guardian is funded by state public sector job ads warping th this stage as well , otherwise there is plenty of choice . If more people choose the read the Daily Mail that is not a conspiracy it is free choice .You think people cannot find the Mirror ?
    Duncan
    On support for progressive system , there is of course support where the level is miles from most people`s pockets . Brown did not do it because it cost him money a fact you have conveniently forgotten not withstanding your misrepresentation of the central conclusion of Robert Chote at the IFS( also the opinion of Gordon Brown in the past) on the 50p rate
    In fact the system is already progressive. According to the Government’s own Survey of Personal Incomes, the top one per cent of earners receive 11.6 per cent of total pre-tax income, and pay 22 per cent of total income tax, while the bottom 25 per cent of earners receive 8.2 per cent of national pre-tax income and pay 2 per cent of the total income tax.As the Institute for Fiscal Studies pointed out, if there is to be any further redistribution of income to the least well off, it will have to come not from the relatively tiny number of people at the very pinnacle, but from the vast numbers of people who are in the top half. That top half affects the vast majority of households

    What Duncan wishes to argue is that there is scope for a ;larger state without it hitting those who already pay the most and get the least , there is not . The Labour Party is well aware of their problem if Duncan is not . What was Tax credits for a Policy bludgeoned through against the advice of the civil service ? It was to try and extend dependency into the lower middle and upper working classes . It has failed

    I personally think you are not right that a new spirit of Fraternity is likely to break out in hard times such a spirit never extended to spongers even in war time , quite the reverse . I think we will see that the country is in the mood for a sort out .If the NUT , for example , is so foolish as to go on strike , as they have threatened already t,hey will find the amount teachers are paid , their time their pension and their pitiful results publicized. I know as a fact the NUT are well aware that they are in “ a time of consequences” and terrified of having their rock lifted
    Finally – Duncan is misquoting Fraser Nelson whose calculations assume the NHS to be ring fenced as has been announced( foolishly in my view)You will see from today’s Guardian that amongst those who agree its all over for New Labour are many of their MPs currently engaged in a pathetic attempt to get into Ermine .

    I cease to comprehend continued support for this bankrupt administration and even the Guardian seems to agree .

  8. Tom P said, on May 29, 2009 at 9:25 am

    Not sure I agree there Newmania!

    The TUC does not fund the Labour party. Individual unions may do, and many do not, but the TUC has no affiliation to any political party.

    The TUC’s members – the individual unions – actually determine a lot of what the TUC does and what it can say. Resolutions passed at Congress tell the TUC what to do, and policy reports put out by the TUC are often amended to take account of its affiliates’ views. As someone who has actually worked at the TUC I can with hand on heart tell you that the TUC’s members do have direct influence on what it does, and regularly exercise this.

    You are also, in my view, wrong about the respective power of the TUC and the CBI. The idea that the TUC can ‘buy policy’ is ridiculous, and this suggestion would probably get as many laughs from the CBI as it would from Congress House.

  9. newmania said, on May 29, 2009 at 10:35 am

    Tom- The Labour Party is now almost 100% funded by the Unions , ( Although the modernisation grant returns this courtesy of the tax payer …but I digress). The Unions are clustered in the Public Sector. As we know we are going to see severe cuts in the Public Sector , even in the now impossible event of a Labour victory there are 7% cuts hidden based on Darlings fantasy growth projections . I`d guess more like 15% which means we are due strikes and probably civil unrest. Then you will see that the TUC has real power , what do you think the CBI will do , stop handing out leaflets ? It’s a small part of the large opposing constituency , there is absolutely no comparison .

    I am not against the TUC . The TUC would hardly be doing its job if it did not seek to continue the exploitation the 80% or so non unionised work force .Nonetheless I support the Unions right to exert collective power for its members . It is up to the rest of us to exert our collective power in resisting it

    Look at the last ten years .The Public Sector Pay has our performed private Sector by 2x and I need hardly add Pensions but I have ( Not to say guaranteed jobs etc.) That is what I mean by buying Policy , and if it does not then what on earth are the Unions doing handing their members money to the Labour Party ? Do not tell me there is a wall between the two , tell Bernie Ecclestone ask the numerous Private Equity Donors and would be peers . Come on Tom !

    I bow to your greater knowledge of its internal workings but I can see the big picture .It’s a shame in a way because I partly like and admire the Unions certainly it’s a heroic heritage . It’s the bloody Caroline Flints Harmans and that crook Purnell that annoy me .

  10. yorksranter said, on May 29, 2009 at 12:05 pm

    Tom- The Labour Party is now almost 100% funded by the Unions

    And the Conservative Party is 100% funded by billionaires. Good old Bearwood Corporate Services and their handy private jet, and the Midlands Industrial Council – not a council, not really industrial, not really anything to do with the Midlands, but a really handy way to conceal exactly who pays the bills.

    Note that Tory donors tend to be anything but industrialists, as well – shopkeepers (Stanley Kalms), property sharks (too many to list), gamblers (Stuart Wheeler), but nobody who does or makes anything, probably because they are well aware that we can’t live by Eurosceptic drivel and privatisation alone.

  11. newmania said, on May 29, 2009 at 2:04 pm

    You will no doubt be supporting the Conservative suggestion to limit individual donations to £50,000 then YT

    Thought not

  12. Alex said, on May 29, 2009 at 3:31 pm

    See under “Midlands Industrial Council” and “Bearwood Corporate Services”.


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