Monday, 30 August 2010

The squeezed middle

Tim Montgomerie highlights an interesting piece by Mary Ann Seighart about how Labour can work its way back electorally.  It begins with the premise that:

"if anyone is going to bear the financial brunt of the new austerity under this government, it is likely to be middle-income voters."

She highlights how media misdefinition has hampered understanding of who the middle is in the UK:

"I say "middle-income" rather than "middle-class" deliberately, for there is a notorious tendency among well-paid metropolitans to assume that the middle classes are simply people like them."

She highlights how this misdefinition then results in bad suggestions:

"Median gross annual earnings in 2009 were £20,801. That is not a lot of money. These people are unlikely to say, airily: "I really don't deserve child benefit. I ought to donate it to Water Aid." Tax credits, introduced by Labour, have helped them enormously, and they dread losing that buffer against debt. They fear for their jobs and, if they are close to retirement, they know they will rely on the winter fuel allowance to be able to pay their heating bills."

The flippant manner in which introducing water charges is talked about by some is perhaps a local example of this mentality.  The desire for 'progressive' cuts intensifies the effect on people in the middle income bracket:

"The Liberal Democrats are keen to make the cuts as progressive as possible, which means targeting middle-class benefits...If Iain Duncan Smith is to find the money needed to help ease the transition from welfare to work, he can hardly raid benefits for the poor while keeping them for the middle classes. One way or another, then, it is middle-income voters who will lose out."

After a range of policy ideas (some good and some bad) this leads to the conclusion that:

"So the left-right divide at the next election is likely to be between one party arguing for a universal welfare state in which people who put money in can expect to get something out, and two parties arguing for a pared-down version that only helps those in need. In that case, Labour would be campaigning for the middle classes and the Coalition for both the poor and the rich. If you thought coalition government threw up unexpected political alignments, you ain't seen nothing yet."

Perhaps the Sun is attuned to this income group with its displeasure at the no tax cuts in this term talk. 

However, there is a potential timing issue with this theory and how much the dire talk is an exaggeration. If the Coalition goes the distance an election is 4 and a half years away if the economy has recovered by then what has been cut may not be as much of the debate as it is now.  Also its good policy right now to be a doom and gloom merchant.  It can be an attempt to establish a 'virtuous'cycle and show clear purpose to the money markets that the issue of the deficit is taken seriously.  Yet the lesson from other countries tends to be that doom and gloom doesn't prove to be as bad as expected with a strong recovery.

For example, the Treasury predictions of this year's deficit proved to be over-estimation of nearly £20 billion.  While it's too soon to make definitive statements on growth (and the American economy looking dodgy is a cause for concern) we have achieved more growth in the first six months than the official prediction for the entire year.

Hence it could very well get better sooner than people expect increasing the Coalition's options in advance of an election.  The squeeze could have been eased before people go to the ballot box in a Westminster election but to get there the Coalition has to hold together through some bad election results particularly next year.  The potential for a split in the Liberal Democrats is real although the scale of it would determine whether the government could continue or make a deal with a smaller party.

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