Deepening poverty for the working class

The recent publication of the final report from the Commission on Living Standards, Gaining from growth, presents a detailed analysis of how the mass of the working class has suffered under the current crisis. It also shows, however, that downward pressure on working class living standards has existed for years, and has only been offset by a large increase in the number of women working in two-parent households, and by the system of working tax credits. With more women now facing unemployment, particularly if they work in the public sector, and eligibility for working tax credits being reduced, the outlook for many working class households is a rapid decline in real income. Jack Edwards reports.

The report looks at those who are on low to middle incomes, defining this group as working-age people living in households with incomes below the median but above the bottom 10%. However, it sets their situation within a context of growing inequality. From 1955 to 2001, incomes rose on average by 2.7% each year. From 2001 to 2011, however, this had collapsed to 0.6%. The ruling class has, meanwhile, grown richer: between 1997 and 2010 real income for the top 5% of earners increased by 29%, while for the top 1%, it rose by 56%. In 1979 the top 1% of earners had an income three times the average; by 2010 it had risen to 5.6 times. Share in total income for the top 20% of earners had reached 44% by 2011, more than the combined share of the bottom 60%.

By contrast, the mass of the working class has suffered stagnant or falling wages with rising costs of living, increasing unemployment and growing poverty. In 2011 weekly income for the poorest 20% was £150 – less than a fifth of the weekly income of the richest 20%. One in five workers is paid below two-thirds of the median wage, below £7.49 an hour. 21% of people – 13.1 million – live in poverty. Falling living standards have not been limited to the poorest sections of the working class, but are now affecting some of the better-off. For every £1 of UK GDP, a mere 12p now goes to wages in the bottom 50%, a fall of 25% over the past three decades. Between 2003 and 2008 – a period where the economy grew by 1.4% annually – earnings for low to middle income households grew by only 0.3% each year. Since 2008, net incomes of this stratum have fallen by 7.5%.

No end in sight

Amongst the factors which influence working class household income in this group, three are crucial. The first is income from male employment, which fell annually on average by £610 between 2002 and 2008. The second is income from women’s employment, which rose on average by £301 per annum. The third is the working tax credit system, which increased household income annually by £581 in the same period. Taking these and other factors together, it meant that these working class households on average had a very small annual increase in income of £143.

However, this is now changing. Women workers are bearing the brunt of job losses in the public sector and the replacement of full-time jobs in the private sector with part-time working. Women in public sector jobs are twice as likely as men in the same sector to lose their jobs. At the same time, by 2015/16 expenditure on working tax credits is projected to fall by £11bn compared with the previous trend. At that point it will total £26bn. Eligibility for receiving the credit has been raised from working a minimum of 16 hours per week to working 24 hours. This means that couples working part-time are finding their average income has already been reduced by more than £2,700. Reforms to child benefit mean that some 840,000 households will lose their eligibility – a £1,700 annual cut in income for two-child households.

Many households have resorted to loans in order to sustain their standard of living. By 2010 the ratio of household debt to income for low to middle income earners had reached 143%, while the burden of mortgage repayments has become significantly heavier than in the mid-1990s, despite historic lows in the base interest rate. Increasing costs of necessities have also contributed to this income squeeze, with housing, water, fuel, food and drink and transport costs accounting for 46% of expenditure for these households by 2009.

What we are witnessing is the pauperisation of the mass of the working class. By 2020 a working age household in the middle of the income distribution is expected to have a disposable income 3% lower than it had in 2008. For the bottom 10% of households a 15% decline is expected. Both estimates are made on the assumption of optimistic growth levels. The reality will be much worse and will happen much sooner. The pressure on the working class to begin to fight back seriously against austerity will become irresistible.

FRFI 230 December 2012/January 2013


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