Yesterday The Voice ran an op-ed from the Resolution Foundation’s Sophia Parker about the, “9.4 million working-age ‘low earners’ – those people living on an average household income of £15,800 while remaining broadly independent of state support.”
It’s a group of people that is not that often explicitly addressed in Liberal Democrat policy debates or campaigning and messaging discussions, expect in as much as they are part of the millions who would benefit from the party’s policy of raising the income tax threshold to £10,000.
Yet these low earner households have been the bedrock of many of the party’s biggest electoral successes in the last decade. The party’s control of a string of large cities – Liverpool, Sheffield, Newcastle, Bristol and so on – has often rested heavily on the support from ‘low earner Liberal Democrats’.
Other elements of that coalition for urban success often get attention. How does the party continue to best appeal to the ex-Tory voters in more affluent parts of those cities won over in the past by a mix of tactical voting and dislike of the pre-1997 government? How can the party keep the support of young graduates won over by the party’s stance on the Iraq war? Is the party saying enough on the environment to retain the votes of the Mosaic Urban Intelligence categories? And so on.
But often very little is said about the low earner Liberal Democrats. Consider how rarely the housing situation for renters, rather than those with mortgages, gets a mention.
The Resolution Foundation’s analysis of the group in general is a good starting point for looking at this group:
They are:
- Squeezed: often too poor to benefit from the full range of opportunities provided by private markets but too rich to qualify for substantial state support;
- Exposed: living at the edge of their means and therefore vulnerable to changes in circumstances; and
- Overlooked: low earners are not well-defined as a group and the pressures they face are not well understood.
They can be defined as:
- Household income: first qualification is presence in income deciles 3-5 (income measured on equivalised, gross and disposable bases depending on detail provided by source), and
- Benefit-receipt: second qualification is independence from state support (independence defined as obtaining less than 20 per cent of total income from income-related benefits)
There are 7.2 million households who meet this definition (28% of all households), over two-thirds of whom are in social classes C1 and C2:
It’s a group of people for whom the Liberal Democrat policy of raising the income tax threshold to £10,000 is particularly well-suited to, because they usually spend all their disposable income each week, have low levels of savings and due to work patterns have variable levels of income from week to week.
As a result, Labour’s preference for tax-credits often makes for a sluggish and bureaucratic system which easily gets out of step with their personal situations – and when errors are made, people do not have the cushion of savings to see them through. That’s why taking people out of income tax brings about more than just the usually discussed benefits. As I wrote previously:
There is a major benefit which doesn’t get counted in pounds and pence in your pocket from being taken out of the income tax system – if you are the sort of person who struggles to handle complicated bureaucracy, who moves in and out of jobs through the year, who doesn’t have the financial cushion to see them through while tax takes are adjusted and over/under payments come and go. Or indeed, if you’re the sort of person for whom all of that applies.
(It’s a point which, incidentally, the Fabian Society seems curiously reluctant to fully embrace when it’s been looking at the Lib Dem tax plans. Yet it’s only the combination of tax systems and how they work in practice that determines the money in people’s pockets. To neglect the question of how they work in practice – the over-payments, the under-payments, the stress caused by paperwork, the sudden changes in tax codes and more – risks putting theory above reality.)
Low earner households have also often been particularly hit by rising prices, as food and fuel takes up a larger part of their expenditure that it does for better off households:
When it comes to housing, rental property plays an important role. Overall nearly three-quarters of low earner households are home owners, but rates are much lower among younger low earners and, in the youngest age group, 43 per cent live in private rented sector.
There is much more that could be said about this group of people, but – with a general and local elections so near – there is also the obvious question: what does this mean for campaigning?
Here are three personas who capture the range of low earner Liberal Democrats:
Chris
- Works full time
- Separated from wife but can’t afford to move out
- Lost eligibility for tax credits
- Rent up 5 per cent; salary up 0.5 per cent
- Taken a second job, looking for a third
- Can’t buy new shoes for children
- No money for self – no socialising, no eye test
- Avoids credit
- Saves with a credit union but unexpected costs – like new washing machine or bank charges – eat into this
- Doesn’t want to think about the future
Jane
- Renting from housing association
- Husband left last year, significantly reducing her income
- Lost job as part time assistant when shop closed
- Visits jobcentre twice a week, searches websites and asks around in shops/businesses
- Available jobs require three years’ relevant experience or NVQ Level 2, 3 or 4 – only has NVQ 1
- Became unwell – depression and anxiety
- Sold car – limiting her job prospects
- Must choose between heating and eating
- Lives hand-to-mouth and feels worthless
Julie
- Works full time as an agency carer
- Lives in privately rented flat with partner
- On council waiting list for five years
- Doesn’t like where she lives, but can’t afford to move
- Not much leftover after rent and bills – no prospect of buying a property
- Before meeting her partner she lived with her daughter because couldn’t afford to live alone
- Grand-daughter gave up her room, so she felt like she was intruding
- Worried that landlord might sell – they’re at his mercy
Leaf through your leaflets and news releases: are there messages in there that will appeal to them? On some points, almost certainly – especially the £10,000 income tax threshold policy.
But many of these concerns either are covered by party policy which is rarely talked about (such as improving the rental sector) or are ones that, at least online, are often abruptly dismissed by some (think how often issues such as a woman’s feeling of self-worth are dismissed as trivial, irrelevant or non-existent by male commenters).
Chris, Jane and Julie do get their rightful attention from some in the party; why not encourage others in your local party to add themselves to those ranks too?
Thanks to the Resolution Foundation for supplying the graphs and some of the information used in this piece.
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27 Comments
“Consider how rarely the housing situation for renters, rather than those with mortgages, gets a mention.”
YAY! I just cannot understand why this is. I mean, quite apart from it being the Right Thing To Do to address the needs of private tenants as much as mortgagees, it’s such low-hanging fruit! Especially in London, where renting is much more the norm for everyone under 50.
This is a key constituency also for the essential message of economic liberalism – this is a group who sees very little special benefit from the state. They pay their taxes which get spent on groups only slightly less well off than they are yet are well below the median household income – the poor paying for the help we give the poorest. And they see very little of the benefits of state privilege handed out to businesses, property owners and similar vastly more wealthy groups.
Their costs of living – so much more significant a part of their incomes than for higher earning groups, are artificially inflated by corporate cronyism, for many, the possibility of bettering themselves by self-employment is made more difficult by regulatory burdens intended to keep competition out. They are going to be the worst affected by the impending bankruptcy of the current systems we have to provide for our retirement.
All i all this is the real “forgotten” group who get less out of the state than most and probably in many cases less than they actually put in. This is the group for whom a radical excision of state privilege would most help. Rigorous Liberalism is just right for them, though I surmise from the number of times I haver to point this out that it is far from instinctive.
Mark
Good post. Its an important debate and it does deserve more attention. The social housing point is important. There is also the issue of how those who rent can have similarly advantageous opportunities for saving to owner occupiers and mortgages.
I think it is possible for Resolution Foundation to over-emphasise on the independence point: we are all often dependent on different services in different ways. Certainly, public services are of very important direct value to this group, including new areas like nursery provision for those with children.
Without getting back over every aspect of the tax thresholds and tax credits debate, I do think there is a tendency in much public/media debate to much underestimate the financial value of tax credits: much media commentary says ‘given in tax credits, and taken away in tax’ as if the amounts were equivalent and so the only output is greater complexity. John Healey was talking about this group – and the Resolution Foundation evidence – last night at a Fabian event.
http://www.nextleft.org/2010/03/labour-must-do-more-for-real-squeezed.html
Healey made the point that 400,000 families have had tax credits “flexed up” because earnings have dropped, and suggested the average gain in these case was approx £37/week, which is very substantial indeed. (That said, the LibDem tweak to assess over a longer-term, I think it is 6 month basis sounds to me on balance a sensible change, though there are pros and cons in that it would delay changes where flexing up, though additional stability over time is of value for the reasons you give).
Welcome to the real world.
Tony Greaves
Jennie: working full-time, partner working part-time, family income just touching £15,000 a year, rent £450 a month, food budget after other bills £20 a week
Looks like I am officially a Lib Dem Low Earner…
“putting theory above reality” – that could be the mission statement of the Fabian Society.
Jennie, your rent is probably twice what it should be if we eradicated the land monopoly, and even then probably twice as much as it should be after that since it is mostly embodied interest – so if we eradicated the money monopoly too you should probably be closer to £300 a month better off solely on your housing costs.
Compared with £700 a year in our tax break, I think “rigourous liberalism” wins.
Jock, undoubtedly so, but £700 is better than the poke in the eye I get from the big two…
Granted, but since it is the state that ultimately protects these vested interests (as opposed of course to the mere string vests Cameron is prepared to “stand up to”) that’s kind of like saying “if you give me £700 I’ll quietly go on paying these rich bastards that you enable to exploit me all this other stuff, thanks”.
Compared with what liberalism *could* achieve it’s not that great a deal and we should not let our party pat itself on the back for leaving all that privilege in place exploiting our “Lib Dem Low Earners”.
I try to be as vague as possible about the details of my personal life. 🙂
I used to volunteer at a Citizens Advice Bureau & we had a thing called a “Quick Benefit Calculator”. I entered clients’ circumstances (work, benefit, other income, mortgage/rent, council tax, children etc) & it told me what benefits they were entitled to. Why not have something for would-be voters along the same lines? They do come up with these “who will be the winners & losers” thing at budgets, where they elaborate that Mr Sod will be taxed more but old Mrs Arsewipe will get more on her pension, etc.
I, further, recall that there was a website prior to the US elections in 2008 on which Yanks could enter their details & be told how much Obama would cut their taxes by. Why not have a similar thing?
PS-
The old MOSAIC has been superseded now so “Urban Intelligence” no longer exists. But there is a category called Liberal Opinions which seems fairly similar.
http://guides.business-strategies.co.uk/mosaicuk2009/html/animation.htm
You can enter your own postcode & those of people you know. Also, I enter in pubs I may be visiting to get an idea of whether going there is a good idea or not.
“Rigorous Liberalism is just right for them, though I surmise from the number of times I haver to point this out that it is far from instinctive.”
Quite, not instinctive, or rigorous or Liberal. It’s a rather sad brand of utopian libertarianism.
It’s really just a mirror image of “the state can solve every problem” attitude that so exercises you,
“Liberatianism really can solve every problem” (or near enough) is little more than my utopia is better than your utopia.
Liberalism accepts that they way the state operates can be reformed. It also accepts that there is no utopi
I’ll hazard a guess you didn’t even bother to read the linked post.
“There are 7.2 million households who meet this definition (28% of all households), over two-thirds of whom are in social classes C1 and C2.”
Wasn’t it these sort of people who switched from Labour to Conservative during the Thatcher years, giving her her landslides? I seem to remember reading somewhere that shifts in support in C1 and C2 social classes were important at that time, though I defer to anyone with actual psephological knowledge!
@Sunder Katwala: I think it is possible for Resolution Foundation to over-emphasise on the independence point: we are all often dependent on different services in different ways. Certainly, public services are of very important direct value to this group, including new areas like nursery provision for those with children.
Well, I think dependence on public services (at least for schooling and healthcare) extends far beyond income deciles 3-5 in both directions (and given the expense of private daycare, probably nurseries too). But there is a big difference between living mainly off your own earnings plus child benefit, and being stuck in low-paid part-time work with multitudinous tax credits, maybe also housing benefit or council tax benefit. All of the latter benefits/tax credits taper sharply if you start earning more, which powerfully constrains what you can do through no fault of your own. I think that’s what they mean by “dependence”.
A modest proposal: the Lib Dems should revisit a Citizen’s Income – it’s now probably by far the most sensible policy of the Green Party, and apparently was an important Lib Dem policy in 1992. That would help both low earners (as defined in this post) and people stuck in the poverty trap created by our Byzantine benefits/tax credits system.
A modest proposal: the Lib Dems should revisit a Citizen’s Income – it’s now probably by far the most sensible policy of the Green Party, and apparently was an important Lib Dem policy in 1992. That would help both low earners (as defined in this post) and people stuck in the poverty trap created by our Byzantine benefits/tax credits system.
Seconded. But not the Greens’ one – it is uncosted and incoherent. It ideally needs to be something directly funded by a “national asset” such as land rents, say. I would suggest also that it ought to be a “negative income tax” rather than a “citizen’s income” – the negative income tax works better higher up the scale as it is effectively clawed back once your tax bill gets beyond a certain point – so it really does more directly help those whose earned income falls below the “negative income tax threshold”.
However, you will find much opposition in this party, despite its long history as Liberal policy.
But you will find
I don’t think Jane is in this group, by the way. A single person in a workless household is almost certainly in the bottom decile, and very unlikely to be in decile three-five.
This group – or at least those with kids – are the “hard working families” that Brown is so keen on mentioning. Nationally they have a reputation for switching directly from Tory to Labour and back again. Our emphasis on civil liberties, sorting-your-rubbish-environmentalism is rarely key to their concerns. The £10k tax band, in contrast, does speak to their concerns.
But as Jock says, the key to making these people better off is housing costs. At the moment the party has nothing coherent to say on this (I know, I had to speak on LD housing to the National Housing Federation last week – the best I could say is that the policies of the other parties were no worse than ours!). If we allow more houses to be built, big or small, private or social, then housing costs (purchase and rent) fall, and people like Chris, Julie and Jennie’s lives are improved both financially, and because they have more choice as to where to live, and more choice that comes from having more disposable income each month. 500,000 houses a year for a decade would be a start.
“However, you will find much opposition in this party, despite its long history as Liberal policy.
But you will find”
But we will find what?
Wht is the secret of eteral life? 😉
Sunder: I think there are different sorts of “independence” involved. Very few people are independent of the state in the sense of not relying on the pavements it provides, the bins it empties, the people it educates etc. However, I think there is a sort of independence which is about feeling that you have some control over your life – e.g. being able to choose where to live, even if those options are heavily shaped by the state’s choices over where to put in bus routes and where to locate schools.
Hi Mark – great post, and thanks for getting a really interesting debate off the ground here. Just a couple of reflections to contribute from our work here at the Resolution Foundation. First, I think it’s great to see so much debate across the political spectrum on what a fair taxation system should look like. But this is fiendishly complex territory – given the interactions between tax, tax credits and benefits – and on that basis any party advocating change in this area will need to proceed with extreme caution if they are to avoid the nightmare created by the move from Working Families Tax Credit to Working Tax Credit in 2003. Easy to say, I know, but I think it’s such an important point.
That said, I agree with Sunder that we should be careful not to dismiss material difference tax credits have made to low earning households, notwithstanding issues around overpayments and so on. As one low earning young dad said to me last week, ‘I like tax credits because I help myself to earn it, and it makes life a lot easier’. Let’s also not forget – before we get into the relative merits of new tapers, thresholds and the rest, that there’s a simple issue around take-up. Half of people who are in work and eligible for Housing Benefit do not claim it. The Treasury estimates that 410,000 families earning under £20,000 a year who are eligible for Working Tax Credit are not claiming.
Just one other thought to pick up on comments around housing. Speaking up for those people in the low end of the private rented sector is something that I’d like to see a lot more of. All the more so given the UK’s tax environment and policy agenda over the last generation – which has been geared almost purely to supporting homeownership. Helping renters to get a fair deal, a secure home and the ability to save for their futures is crucial.
“The Treasury estimates that 410,000 families earning under £20,000 a year who are eligible for Working Tax Credit are not claiming.”
I’m fairly sure the upper limit for earnings to be eligible for WTC is about £14k, isn’t it?
Either way, I’m not surprised to hear that. I wouldn’t risk it. Usually the issue with take-up of benefit revolves around inability to deal with bureaucracy and fill in forms. With tax credits, the problem is that even if you’re very good at dealing with bureaucracy and forms, you can still get bitten on the arse. I used to be a tax advisor and had a couple of clients who were eligible. Even with a tax accountancy firm handling everything for them and doing everything to the letter, some of them still got bitten on the arse.
Also, WTC in particular is probably low take-up because most people use the phrases “tax credits” and “child tax credits” interchangeably, so there’s a much lower awareness of the WTC element. The government tend to promote tax credits as being for people with children, which to be fair they largely are.
I have an innovative mechanism (would have been best implemented at the bottom of the housing bust but would still work now) that enables people to buy “shares” in the equity of the house they are effectively “renting” that they can then take with them when they move (useful e.g. if the renting is to do with low job stability or similar). Eventually you end up with a collection of “private rented housing” that is “owned” collectively by the tenants that have participated in the scheme whilst allowing the landlords to take capital out to reinvest in more rented housing.
Rents would tend to start at around local reference rent levels (so that, in harder times, they would also probably qualify for housing benefit to tide them over) and would tend to change, as rents should, with local earnings growth, and if you get stuck for a while you sell back some shares instead of getting evicted. So it makes Housing Benefit work as it should – as a stop gap and in a system with more long term security so the Housing Benefit is a benefit to the occupant more than to the landlord.
@Jock: Isn’t that something similar to what can be done within mutual homeownership societies? We really need new thinking on housing. Part of the problem (as Tim Leunig points out) is that planning regulations restrict the supply of housing. But another big problem is that there is a massive financial gap between renting and individual homeownership. Any mechanism to bridge that gap is worth taking very seriously.
Maybe something that could be done already under existing laws is to have mutual homeownership societies buy out private landlords, and allow their members to take a mix of equity and renting depending on their resources (the amount of the purchase price not covered by members’ equity would be borrowed on a mortgage). This would be a slightly more flexible version of Swedish mutual homeownership societies, which are a very large part of the housing sector there (partly because they are the only way to “own” a flat, but there are also many small housing estates that are owned in this way).
Niklas: Yes – it is “MHOS” plus, in my scheme anyway, Limited Liability Partnerships, to create “Property Investment Partnerships” that I mentioned previously. I don’t *think* there is anything needs changing in law (though was concerned at the last of the list of clauses passed with no discussion at the end of the budget speech which mentioned “Stamp Duty” and “Partnerships” which could screw it up big time).
It just needs supporting and promoting. I tried to get people interested (our south-west MP who was a Midland Bank man? was interested) when the “TARP” was being rolled out as it would have been a perfect non-debt based replacement for that, especially where landlords were getting into trouble and dumping homes and causing tenancies to come to abrupt ends).
It’s very flexible and can start very cheaply for a tenant who’s only just beginning in building new household. And ideal for places like Oxford (and presumably your way too) where lots of graduates might rent for several years as they get on career ladder and get nothing out of that renting in terms of capital investment.
I’ll read your post on community finance partnerships properly when I have time – at the moment I should really get off the computer and on to my macroeconomics notes…
Being able to buy a house in steps would reduce the reliance on high LTV mortgages that has left so many people vulnerable to what are actually relatively small falls in house prices (compared with the falls in the stockmarket at any rate!). It would also reduce the fear of never getting a foot on the “property ladder” because house prices have tended to rise rather faster than the interest rates available to savers.
As to where you could start with this idea, I think I have just the people for you in Kent 🙂
http://www.guardian.co.uk/money/2010/mar/06/buy-to-let-fergus-judith-wilson
Certainly Oxford, Cambridge, London and the South East generally are crying out for better ways of accomodating their residents. You’ll certainly find a lot of people interested in Oxford.
@ Tim Leunig
“But as Jock says, the key to making these people better off is housing costs. At the moment the party has nothing coherent to say on this”.
Agreed. And it’s not just housing costs. One way or another businesses also have property in their cost base so this directly and indirectly ripples through the economy putting up costs all round.
So why is this elephant in the room apparently invisible to the official party?
Mark Pack
Yet these low earner households have been the bedrock of many of the party’s biggest electoral successes in the last decade. The party’s control of a string of large cities – Liverpool, Sheffield, Newcastle, Bristol and so on – has often rested heavily on the support from ‘low earner Liberal Democrats’.
Yes, but why mention just these?
What you, and many who suppose our success now and in the future in the south of England involves being “Tory-lite” forget, is that our success in the south often rested heavily on low-waged people there. This is what brought me into the party, and still is what ultimately fires me. Poor people in the south were never Tories, yet felt let down by Labour who ignored their interests and seemed to stand only for the interests of the north and inner cities. That is why they flocked to the Liberals in the 1974 general elections, and their support then was the foundation of the third party revival which has led to us being in existence now. More so than what happened in 1981, despite what has been written in history.
The south does not consist entirely of wealthy people who work in financial services, despite what the smart set may say. The smart set who live in the south think everyone else in the south is like them because the poor in the south are invisible to them. The poor in the south never took to Labour much because Labour didn’t have much to say for them either. They remain savagely discriminated against by the electoral system, denied a voice, yet to this day we hardly mention that aspect as one of the reasons for supporting electoral reform. Denied a voice and representation, they have little even to raise awareness amongst themselves of their plight. Even in Liberal Democrat news just recently there was an appalling article in which the word “southern” was used to mean this wealthy smart set rather than real southern people to whom this smart set is as alien as it is to the northerners.
I second Jock in thinking about a negative income tax. It is certainly the most theoretically simple, and possibly the most fair, as well as providing incentive to work (which shouldn’t be a dirty phrase, since it entails helping people into independence, as has been mentioned above), proportionality and universality
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