Economic recovery may bypass low and middle earners

The Resolution Foundation's Matt Whittaker: "We need to remove the barriers to employment"

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Millions of poor and middle-income households may be bypassed by any economic recovery, a report says.

The Commission on Living Standards argues that their quality of life could stagnate for the next decade, ending no higher in 2020 than they were in 2000.

The group blames this prospect on the demise of administrative and manufacturing jobs in the UK economy.

It warns that high unemployment will continue to depress wages and calls for state subsidies to boost employment.

"On current trends the outlook for the bottom half of the working population is bleak even once growth returns," the commission, brought together by the Resolution Foundation think tank says.

"This stagnation of living standards can be averted if action is taken.

"Success in boosting low pay, raising skills, and increasing female employment could see a typical middle income family better off by £1,600 (after inflation) a year by 2020," the think tank adds.

The UK economy pulled out of recession, again, in the third quarter of this year.

But the economy's annual output is still no higher than it was at the start of 2007, shortly before the start of the credit crunch, international banking crisis, and the consequent international recession.

The Commission's members included economists, trade union leaders and employers.

Among them were Phil Bentley the managing director of British Gas, Sir Win Bischoff the chairman of Lloyds bank and Paul Johnson of the Institute for Fiscal Studies.

'Too little debate'

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Ministers will agree with some of the Commission's answers, and reject others. But they will likely admit that it highlights some very important questions about the future shape of the economy”

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UK unemployment rose sharply and since the middle of 2009, the official unemployment rate has been hovering around the 8% level.

As a recent analysis by the Office for National Statistics (ONS) showed, the combined effect of the recession - mainly high unemployment, stagnating wages and rising prices - has slashed living standards.

The ONS said that income per head, taking inflation into account, had fallen by more than 13% since the start of 2008.

To stop the benefits of any economic recovery simply being concentrated on the wealthier half of the population, the Resolution Foundation suggests a series of measures to redistribute income and wealth.

These include:

  • more state subsidies for cheap childcare
  • cutting the national insurance contributions paid by workers aged 55 or over
  • ensuring that the government's forthcoming Universal Credit system is as generous to second earners in a family as it will be to first earners
  • switching child tax credit from parents of older children to those with younger ones
  • reducing council tax bills for cheap properties by increasing the tax on expensive ones

Clive Cowdery, chairman of the Resolution Foundation, said: "There remains far too little debate about whether growth will benefit the broad majority of people.

"This will not happen automatically but... things can be done to ensure the benefits of economic growth are shared by all."

Phil Bentley of British Gas told Newsnight that part of the underlying problem was that not enough companies were investing in improving the skills of their workers.

"A lot of companies are not investing in the skills as they used to. Our engineers get poached by other companies that aren't investing," he said.

"One of the things the government could do is give more support to recognise apprentice schemes."

The report was welcomed by David Willetts, the universities minister, who said some of its conclusions chimed with government policy.

"The government is creating more apprenticeships to try to have more people in those middle-income jobs, which is where this report identifies the squeeze is happening," he said.

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