A thing for the New Statesman here
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The British middle class is sinking. Is our politics big enough to meet the challenge?

An interesting statistic crept out of the Department for Work and Pensions last week, while the pubs of Britain no doubt buzzed with discussion about Jean-Claude Junker or how someone in Ed Miliband's office may or may not have recognised someone at a FT summer drinks reception.

According to the DWP, the average household income in 2012-13 was £440, unchanged on the year before. It represents the third consecutive year of stagnation or decline (depending on how you cut the figures). As the IFS have noted, in real terms this leaves median household income in roughly the same place as it was in 2002, and comes off the back of painfully slow wage growth from the start of the 2000s.

In the same week the increase in the price of homes reached an all-time high. Add in that a majority of people on typical incomes now have less than one month's income as savings, plus the slow hollowing-out of middle income jobs, and a pretty clear picture emerges. The foundations of middle class life – a decent income, assets, savings, pensions – are getting harder and harder to attain, especially for those just starting out. In many cases, debt has filled the gap.

This goes beyond just failures of the private sector. The welfare safety net has also become residualised. People on reasonable incomes can work their whole life and receive only paltry amounts when they lose their job. When it comes to both work and the state, people in the middle have been putting more in than they've been getting out for a long time.

It should go without saying that working class communities have had it hardest over the last thirty years. But the idea of middle class decline too is too often met with derision, especially among progressives.

Part of this is down to a distorted view of what "middle class" is, a popular association with what is in effect the upper middle classes; the world of piano recitals and Waitrose where "struggle" means difficulty meeting school fees. Of course, the middle class contains many like this too and they are doing more than fine. In fact, the most interesting development that experts havepointed to in recent years is the fracturing and polarisation of the middle class, between the upper echelons and those at the lower end. And previous generations who started out at the lower end of the middle class, bought a house at the right time, settled into a profession and now face retiring near the top may well be the last to make that journey en masse. In short, the bottom is falling out of the British middle class.

There's been a lot of talk about "narratives" recently. There's also been a lot of talk about how Ed Miliband doesn't have "a narrative". But in his defence, he's one of the few at the top of British politics to grasp this phenemenon, whatever his other difficulties. He's not totally alone – some figures on the right, for instance, including the brilliant Peter Franklin at ConHome, have twigged too. But wider interest is otherwise conspicuous by its absence, in Westminster at least.

Instead we get slightly echoey outdated debates about Europe, whether X or Y is "pro-business" or "anti-business", whether a particular view of public services is sufficiently "reforming" and so on and so forth. But surely the shape of that discussion changes in the face of such huge societal shifts? No doubt this failure to catch up is partly because the senior ranks of the commentariat are largely made up of those at the comfortable end of things (themselves probably among the last who can expect to make a good living out of a profession like journalism) - but it's depressing all the same.

To be fair, the answers are neither easy nor obvious. The likes of Resolution Foundation have been fantastic at laying out the problem of stagnating wages and ways to ameloriate it, but no one has come up with a wholesale plan for reversing the trend. Some of this is because it rubs up against global head winds and the modern divorce between power and politics. It probably requires trans-national solutions, or at least a revisiting of the way Britain approaches globalisation – a debate that hasn't even been opened here.

But those who over-play the inability of national government to fix things are also wrong, and usually have a vested ideological interest in doing so (in this sense the argument between those favouring a "bigger" or "shrunken" Labour offer in opposition is mostly phony, and a proxy for a bigger one about what can be achieved in government). Ideas that would be both effective and achievable include wholesale reform of corporate governance to include a significant role for workers; profit-sharing and other ways of spreading wealth; lower-cost routes into home ownership; breaking up and remaking British banking; decentralisation to cities; the prioritisation of vocational "middle skills"; prioritising British industry in procurement; reform of takeovers etc. When it comes to welfare, there is IPPR's National Salary Insurance scheme or SMF's "flexicurity" proposals.

All of this can only start, though, with a recognition that our current journey back to basically the same political economy as we had before the crash is not what success looks like. It wasn't good enough then and it isn't now.

Marx famously wrote:

The lower strata of the middle class... all these sink gradually into the proletariat, partly because their diminutive capital does not suffice for the scale on which Modern Industry is carried on, and is swamped in the competition with the large capitalists, partly because their specialised skill is rendered worthless by new methods of production. Thus the proletariat is recruited from all classes of the population.

Things may not be as apocalyptic or revolutionary now, but they are bad, and contradictions within modern British capitalism mean the lower end of the middle class is sinking. The entire middle is being stretched, squeezed and polarised as never before. The result is entire neighbourhoods – which on the face of things look serene – in fact struggling to keep their head above water, facing futures significantly less secure, less stable and less well-off than their parents. This shapes millions of people's everyday lives and influences their political attitudes, and it should influence our political discussion too. At the moment, though, it doesn't seem to be. Future generations will surely look back and wonder what on earth we were talking about instead.

Cameron strikes some nice notes, but plays the wrong tune

Post for Shifting Grounds

Cameron strikes some nice notes, but plays the wrong tune

There’s no doubt that David Cameron’s speech to Tory party conference yesterday was one of his better ones since becoming Prime Minister. In some ways it was his most Presidential, not just in the personal touches woven in throughout, but in his attempts to transcend national politics and sketch out a vision of a new frontier – in this case, the new global economy – and place Britain at the heart of it  (sometimes called a ‘moon shot’ in US politics). We are, he said, in a “global race” with new countries on the rise, “sink or swim. Do or decline”.

Cameron also had strong dividing lines on welfare and schools – two issues Labour has no settled position on, but will clearly need to have in the next few years.

But the speech had a fatal weakness. At its core was a diagnosis of a country full of budding businessmen and women and ‘can do’ creatives, being held back by a bloated state and unreformed public services. The solutions that flowed from this were predictable enough – hack back the state, reform welfare, get the deficit down, liberalise school provision. Growth will naturally follow.

But this fundamentally misreads British politics today. Most people won’t become ‘entrepreneurs’, and most don’t want to. They just want to get on, get a good job, earn decent money, provide for their family, and lead happy and fulfilling social lives. The biggest impediment to this in 2012 is not the welfare system or planning laws, but an enormous squeeze in living standards and an economy that only works for those at the top. Wages are stagnating, jobs hollowed out, yet utility bills, rents, train fares, tuition fees and mortgage deposits are all rising (this is the true face of ‘Britain on the rise’ under the Tories). And so are bankers’ bonuses and executive pay, all the while SMEs – a real engine of jobs – can’t get access to finance, and young couples can’t get on the property ladder.

Even those traditionally upwardly mobile parts of the population – at whom the speech was clearly aimed – are suffering from this squeeze. Polling for Southern Discomfort Again showed that between 41%-47% of floating voters in key middle class marginals say they are now not confident they have enough money to make ends meet. As Lord Ashcroft’s polling shows, a key feature of the ‘suspicious strivers’ group he identified is economic insecurity and precariousness.  The squeeze is also having obvious effects on demand and consumer confidence – without which all the “diplomatic showrooms” and ankle flashed to multinationals matters not one jot. Economically and electorally, post-crash Britain is defined more by strugglers than it is by strivers.

To this backdrop, a speech about the ‘global race’ in the new world economy, or unleashing a nation of Steve Jobs style entrepreneurs, is a little arid and far off. It’s not irrelevant, it’s just remote; a bit mid-1990s. On the real day-to-day challenges and anxiety facing people already in work, Cameron had little to say. Bank reform did not feature once in his speech, nor energy companies, or even the words ‘bills’ or ’wages’. The Prime Minister may have struck some nice notes along the way, but he played the wrong tune.

The truth is, most of the obstacles holding back prosperity in the UK and our place in the world come not from an unreformed public sector, but an unreformed private sector. That a Conservative Prime Minister, who came to political maturity in the age of neoliberalism, feels uncomfortable talking to that challenge is not surprising. But it ultimately leaves him unable to connect with the lives of people he needs to reach to win.

It is this divide that Labour needs to put the Tories on the other side of. The party needs to find a consistent line on welfare and schools, but it can’t allow the election be fought on this ground. They need to make 2015 an election about living standards and the squeezed middle; who wants an economy which puts money in the pockets of ordinary people, and who only looks out for the top 1%. Making banks and energy companies work for people, an active industrial strategy, even tax cuts at the bottom or middle paid in part by rises at the top – all, among others, have a role to play. On this divide, the Tories are extremely vulnerable – because they simply don’t grasp Britain’s living standards crisis to begin with. However eloquently delivered, David Cameron’s speech yesterday proved that.

Four reasons why 'the squeezed middle' should be at the heart of Labour's thinking

This appeared on LabourList

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Four reasons why 'the squeezed middle' should be at the heart of Labour's thinking

With the budget fast approaching, the Deputy Prime Minister’s moves on the personal allowance last week make it clear that the government is making a push to be seen to stand on the side of those on low and middle incomes. This is a demographic Ed Miliband has until now been able to make his own, and must now move quickly to reclaim.

We shouldn’t be surprised that the government confident enough for a land grab. Ed’s own approach on this subject over the past year has been a bit frustrating. He introduced the squeezed middle to our political lexicon, but that is largely where it’s remained. Beyond one speech, he hasn’t built on it or fleshed out its implications, just flung it into the odd soundbite or interview. Hence it’s become a sort of ephemeral buzzword; a phrase used to describe the world, but not change it. Neither is a “blitz of interventions” on it enough, as his aides promised. He needs to put it at the heart of everything he says and does, as the problem which ‘responsible capitalism’ seeks to solve rather than just as a point of reference.

This is not because, as some have argued, it is some buzzy catch-all phrase, but because it’s a serious economic phenomenon affecting the lives of low-to-middle income earners across the country (e.g couple earning between £12,000-30,000 per year, or a family with three kids on £20,00-48,000). The average wage has been flat in real terms since 2003. The Resolution Foundation’s recent findings highlight again that these people are now badly struggling, just about keeping their head above water – most are struggling to pay bills and are having to cut back, and inevitably feel the pain of inflation, wage freezes and cuts even more acutely.

For Labour, the faltering living standards of this group are also a real political phenomenon, spanning the whole of the country, including the South and the Midlands where the party’s greatest challenges lay. The much cited Southern Discomfort series found ‘the squeezed middle’ “hold the key to Labour’s recovery” in these areas; around halve of floating voters say they do not have enough money to make ends meet. While some move up the earnings scale, many stay put – they remain the centre of gravity on the income spectrum.

But what should all this mean in practice? A hazy appeal to these people is not enough – Ed has to put them at the forefront of his strategy, especially on the economy. They need to be at the heart of every reaction to events, every press release, every PMQs, every speech. He shouldn’t be afraid to define the group if pressed, but it would also appeal to many others who feel like they work hard, pay taxes, but get little out of it. This would open up space for a distinct and coherent alternative to the Tories, in a number of ways.

1. A simple argument on the economy which resonates.

The fact is, most people are broke. Stagnating wages play a big role in explaining this, and are a significant underlying weakness in the economy (as Bill Martin and others have argued) – they have left consumer confidence perilously low, with obvious knock on effects for productivity and employment. Miliband should point out that the Tories’ economic approach is failing because the scale of their austerity measures take yet more money out of ordinary people’s pocket – the very people who drive the economy – for instance the VAT rise, cuts to child benefits and tax credits. This shifts the focus of the economic conversation away supply-side fetishism and on to what we have – a demand crisis.

2. Bold, short-term policies which also address the party’s economic credibility.

Shockingly, most polling shows the views of ordinary voters are not the same as Westminster insiders. Most are not besotted with deficit reduction time-tables (hence ‘too far, too fast’ polls well in abstract) they just don’t trust the Labour party with their money, unfair as it may be. It’s this which the Tories have exploited to push their message as the only credible approach. But there are more progressive ways of neutralising this issue. Labour should advocate a cut to the bottom rate of income tax as a means to stimulate the economy. This must be costed; so Ed should suggest partially doing so through increasing the top rate of tax by the same basic amount (e.g 2p on the top for 2p off the bottom) – then challenge the Tories to oppose it. A more vocal campaign for a living wage should be his next step, as a means of making work pay. This, on top of Labour’s other work challenging train and energy companies, would hammer home the message that the party’s economic priority is the back-pockets of ordinary people, not the wealthy elite. This is the surest route back to economic trust, not trying to out-posture the Tories on cuts.

3. Some coherence on cuts

If Ed wants to stick to his underlying position on cuts, there needs to be more logic to those he supports and those he doesn’t. Putting those on low-to-middle incomes at the heart of Labour’s thinking would mean opposing those cuts which most directly add to the squeeze on these families (for instance child benefits, housing benefits and tax credits) while supporting them in areas where they have the least impact on this group and thus on demand (for example, International Development or Defence). This doesn’t obviate the need for touch choices, but protecting living standards should replace the more scatter gun approach adopted thus far.

4. Long term vision (which goes beyond just spending)

The squeezed middle also lends itself to a long-term argument for the run up to the next election. At the heart of the this pithy phrase lies the failure of an entire economic model. Even when the economy was booming in 2003-2004, growth had stopped translating into wage gains for many ordinary people. They were working harder, but gaining less. The benefits were increasingly skewed towards the top: while the share of GDP going to low-to-middle income earners steadily declined over the last 30 years, it soared among the top 10 and 1%. For all the growth in the last eight years and in the next eight (if any), average real disposable household income will likely stay around the same. Neither is growth in new industries or technologies per se bound to aid employment – well paid working class and lower middle class jobs have steadily been sucked out of Anglo-Saxon economies (as the story of the iPhone in the US illustrates), replaced by more insecure, lower paid work. It is to this backdrop, to fill the gaps and make ends meet, that many have borrowed up to their eye-balls.

This is the most significant long-term trend occurring in theUKtoday. Finance-led growth, the decline of trade unions, and a hands-off, self-regulatory approach to the market and globalisation have all played a major part in getting us here. For a generation, all of this – the dominance of big money, inequality and excess at the top – has been sold with the promise that the benefits will ‘trickle down’. Now, for the heart of our working population, that trickle has dried up. Livelihoods and the economy at large are being now undermined. New Labour’s more redistributive measures mitigated the effect of this, but never re-shaped it. A return to the old growth, in the long-term, won’t be enough. The system is broken, and there’s an obvious need to re-think the entire way we do capitalism in this country.

Unlike other party leaders, Ed at least gets this, and has a critique of modern capitalism which accounts for it. His ‘responsible capitalism’ agenda is a good start, but he needs to state the problem more clearly: it is not an abstract issue of morality, or heart over head, but efficiency, real jobs and building an economy which serves everybody. Neither does this have to all be about spending – to the vogue question, ‘What is Labour about when there’s no money?’, pre-distribution should be the answer – getting up stream to better shape economic outcomes. Greater economic organisation in the workplace, a more active state ‘picking winners’, the separation of casino and high-street finance, national and regional investment banks, the protection of industry from predatory takeovers, new procurement rules, measures to deter outsourcing, and much more all have a role play a role.

But no space for any of this can really exist unless the broader trend it seeks to address is more widely known and prioritised. Inconsistency, not ideology, has long been Labour leader’s biggest problem – picking themes up, making a speech, then not building on it. He has done well to redress that over ‘responsible capitalism’ and bankers bonuses, but he now urgently needs to build that within a bigger argument about living standards, and hammer away at it day after day. For Labour, the way to the British people’s hearts is through their wallets.