Tomorrow Ed Miliband will make his much-trailed pitch to Britain’s middle classes. Its presentation by some in the media – as a panicked response to Labour’s falling poll ratings – is a little unfair. The plight of the nation’s ‘squeezed middle’ was front and centre of Miliband’s leadership campaign in 2010 and it has been a theme to which he has returned regularly throughout his time at the party’s helm.
That is not to deny that the Labour’s leader’s attempt to portray himself as the saviour of the middle class is not politically savvy. In 1974, the last – and thus far only – occasion on which Labour was able to eject the Conservatives after one term in office roughly four in 10 voters were middle class while six in 10 were working class. Today, those proportions are reversed. As the party found to its cost in the 1980s, the working class alone is not big enough – and class loyalties are not strong enough – to send a Labour prime minister to Downing Street.
Indeed, since the 1970s, it has been the ability to construct cross-class coalitions which has been the key determinant of electoral success. Margaret Thatcher built a string of Tory majorities in the 1980s on the back of her ability to detach upwardly mobile working-class voters from their previously Labour moorings. In 1997, Tony Blair won back the skilled working-class voters of the new towns and then dug deep into the formerly Tory-voting middle-classes in the suburbs and shires to construct a coalition which, while somewhat shrunken by 2005, sustained Labour through three consecutive election victories – a feat which eluded all of his predecessors.
So Miliband’s move is smart politics. He is also correct that the appeal Labour made to the self-confident middle classes of the late 1990s would ring somewhat hollow today. Caroline Flint captured the change well in a piece for Progress last summer: ‘The comfortable prosperity and easy optimism of the 1990s and early 2000s has given way to a darker mood. More people are middle class, but being middle class feels less secure than it did.’ ‘“Worcester woman”,’ she concluded, ‘has become “Aldi mum”.’
The figures which lay beneath that darker mood are stark. Middle-class incomes have been the hardest hit since the recession, falling by 10 per cent. A third of graduates are in jobs previously done by someone without a university degree. The promise of home-ownership – for decades inseparable from the middle-classes’ self-identity – has become a false one. Fifteen years ago it took someone on average earnings three years to save for a deposit for a first home. Today it takes 22 years.
But, as Miliband has also been consistent in saying, the squeeze on some middle-class incomes did not start with the recession – for much of the ‘squeezed middle’ Labour’s first seven years in power were golden ones, but, after 2004, their real disposable growth stagnated, growing by a negligible 0.14 per cent each year. And then, with the credit squeeze and the collapse of Lehman Brothers, disaster struck. As Stewart Lansley of the TUC suggests, the combination of squeezed incomes and the shedding by many companies of mid-level jobs has led to a subtle reshaping of Britain’s social structure. In the immediate postwar years, it resembled a ‘pyramid’ with a small, wealthy elite at the top, a larger but still small and comfortable middle and a large majority at the bottom. By the end of the 1970s, with the loss of manual working-class jobs and greater affluence, Britain looked more like a ‘diamond’ shape with a small group of the rich and the poor and a much fatter middle. Today, however, Lansley describes it it as ‘an hourglass in shape, one with a small bulge at the top and a much larger one at the bottom’.
Having identified the problem, will Miliband produce a suitable solution? We already know that he believes the economy needs fundamental change in order to produce more of the better-paying jobs that will grow the size of the middle-class and help take the squeeze off incomes. But, as the Labour leader knows, this is a longer-term project that will not provide immediate relief.
So what do the middle classes want to see from a future government? Polling last autumn by YouGov for Progress provides some hints. YouGov began by separating the ‘comfortable middle’ from the ‘squeezed middle’, which it defined as households headed by a white-collar worker aged under 60, which say either that it can afford essentials but has nothing left over for luxuries or ‘can only just afford my costs and often struggle to make ends meet’. Labour support among this group has risen sharply since the general election – up from 32 per cent in May 2010 to 46 per cent in October 2013. Support for the United Kingdom Independence party is also up – from three to 11 per cent – over this same period.
Asked what they thought would benefit them most if the government were to find its financial position better than expected over the next year or so, ‘squeezed middle’ voters opted for lower taxes (40 per cent) over more spending on public services (37 per cent) or reducing the government’s debts (12 per cent), although tax cuts fell down the list of priorities when these voters were asked what they believed would be best for the country as a whole. Support for lower taxes was, in fact, stronger among ‘squeezed middle’ voters than those in the ‘comfortable middle’, who were also more likely to believe that they and their immediate families would benefit more from paying down the national debt.
YouGov went on to ask ‘squeezed middle’ voters for their two or three priorities if the government decided to put more money into people’s pockets. Freezing home energy prices, cutting income tax and lowering VAT led the way, narrowly ahead of reducing fuel duty and council tax. On their priorities for public spending, the NHS, care for the elderly, and schools topped the list. ‘Squeezed middle’ voters, indeed, showed a greater desire than those in the ‘comfortable middle’ to see the government prioritise tackling the ‘care crunch’, with both care for the elderly and investment in childcare and nurseries scoring more strongly among the latter than the former.
So where does this leave Labour? Clearly, Miliband’s plans to freeze energy prices resonates strongly with the voters he has decided to target. Politically, however, his difficulty is that, beyond this, the priorities of those he’s pledging to ease the squeeze on are not naturally Labour’s: cutting income tax, council tax or fuel duty are all more traditional Tory territory. Miliband is never going to be able to outbid the Tories across the board on this front and he should not try. However, it would also be strange for Labour to preclude consideration of the tax burden – which governments have direct control over – from its plans for relieving the ‘cost of living crisis’.
Already the party has announced plans for a mansion tax to fund the reintroduction of the 10p starting rate of tax in order to help low earners. Should the next step be tax relief for those on middle-incomes funded, in part, by an increase in the higher rate of tax to 50p? When Nigel Lawson introduced the 40p tax rate in 1988, it was paid by only one in 20 taxpayers. Today, that number has risen to one in six, an estimated 4.3 million people. Indeed, while George Osborne cut taxes for the 267,000 people paying the 50p rate last April, he allowed ‘fiscal drag’ – the process by which the thresholds for certain tax bands fail to keep pace with earnings – to pull an additional 400,000 people into paying the 40p tax rate.
Since the coalition came to power, over one million more taxpayers have ended up paying the 40p tax rate. As the blogger Nick Donovan explains, this has been a conscious choice: ‘One side effect of the coalition’s policies is that, in order that higher rate taxpayers do not benefit from the raising of the personal tax allowance, the lower limit of the upper income tax bracket has been shifted downwards. This is a new trend and … is taking the middle of the pay scale quite close to the upper band of income taxation.’ And Donovan goes on to outline the impact of this: ‘The median full-time earner in London is no longer a basic income taxpayer, and on current trends the median male earner in the UK will also be an upper rate taxpayer quite shortly. To put this in perspective, in all of England and Wales a teacher will be a top rate taxpayer once they hit the top of the main pay scale (£31,868); and all teachers on the upper pay range, all leading practitioners, and many of those teaching in London, even on the main pay scale, will be upper rate income taxpayers.’
Cutting the 40p rate would be a huge financial undertaking which the country can ill-afford. However, linking a new higher rate of tax to putting a halt to fiscal drag – in other words, to stop more people being pulled into it the 40p tax band – would not only be eye-catching but show that, when it comes to the ‘squeezed middle’. Labour is willing to put its money where its mouth is. Ed Miliband is right to want to place Labour on the side of the middle classes. Now tax has to become part of that conversation.
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Robert Philpot is director of Progress. He tweets @Robert_Philpot
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Photo: plashingvole