The low earner Liberal Democrats revisited

A couple of years back I posted about the “low earner Liberal Democrats” who have been a major part of the party’s progress, especially in squeezing Labour votes in more rural seats and in making progress in urban areas against Labour. Events in the interim have if anything made this group even more important to the party.

In some ways, with in particular the emphasis on the £10,000 or more income tax allowance, support for a (modified) benefits cap and the Pupil Premium, the party’s policy outlook now addresses all the more their main concerns. However, in other ways, it does not.

How often, for example, have you heard about Liberal Democrats – either nationally or in the local campaigning in your area – talk about rising prices? Yet research such as that from Policy Exchange show that rising prices on many staple parts of life are one of the top concerns for the low earner Liberal Democrats, and indeed voters more widely. Campaigns such as that from Bradford East MP David Ward over high car insurance premiums are still very much the exception in Liberal Democrat ranks.

Here then is that original post, updated slightly for the passage of time.

The low earner Liberal Democrats

In 2010 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. Where the party has made big seat gains in urban areas against Labour it has been largely thanks to the support of the low earner Liberal Democrats. Where since Coalition it has carried on winning such wards, it has been largely thanks to retaining the support of those same people.

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? How can the party win the support of young graduates won over by the party’s stance on the Iraq war and dislike of New Labour’s authoritarianism? 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:

Low earners graph

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:

Inflation graph

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.

* Mark Pack is Party President and is the editor of Liberal Democrat Newswire.

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8 Comments

  • Geoffrey Payne 7th Jun '12 - 12:40pm

    An excellent article Mark. I think we need to look honestly at the overall impact of government policies. Because however good our progressive policies are, they seem to be undermined by other policies that are not progressive, and a lot of people are very angry about it, as we find out on the polling day for the local elections. I wander if anyone thinks we will meet our legally binding target of eliminating child poverty by 2020?

  • This article should remind us that building more houses, and so reducing rents, is the most important medium term change we can make for this group.
    In the short run we need an economy that delivers jobs and pay rises…

  • I don’t understand why Chris can’t get child tax credit?

    I’d be very surprised if any of them are better off now, not least because of (what Nick Clegg would term as ) the largest ever increase in the cost of living in 2010-2011.

  • Patrick Smith 7th Jun '12 - 8:23pm

    This is an excellent article and should be the subject of further punctuated reviews, over the next 3 years of Coalition Government, to test the measured impact on the 7.2 families lowest earners of Liberal Democrat housing,education and family care inspired legislation : and importantly the raising of the tax threshold i.e.to £10,000, so that there is more income available to spend on food,energy and children’s shoes.

  • Tony Dawson 8th Jun '12 - 7:55am

    This article is a really good starting point for policy makers. A key point missed, however, is that this group of earners is most vulnerable to sways in the global economy and Britain ‘catching flu’ when the world ‘gets a cold’ – and to competition from high skill low wage emerging economies. Training to improve productivity and income is as important as trying to protect buying power with mediocre income. I would also point out that there are other ways of bringing rents down besides house-building, much-needed as that is. Also, how are we to build houses when central and local government issue warm words but are both busy facing both ways on the NIMBY issue and the conflation of real and pretend environmental concerns?

  • Very well thought through article Mark.

    We as a party need to address housing as an issue. There are a huge group of people trapped in poor bad housing with private landlords who refuse to rent them more suitable if affordable for them to live in!

  • On 31st August my part-time job comes to an end. I will be back on my medical pension of £10,036 per annum (before tax). I live in social housing, I have now been denied ESA (which is why I returned to work when offered a year’s contract) and I am over the benefit threshold. (While on ESA my diabetic control was good, while at work it became poor, but that is another matter)>

    I still continue to believe that the Lib Dems offers the most progressive policies to the people of this country but I want to affirm the need for more low rent social housing and the swift implementation of the £10,000 threshold (of course I have an axe to grind on both of those).

    I am fortunate that my children are adults of independent means; how the hell we would cope if they weren’t I simply dont know. I am a person who can and does live simply so at the moment I am able to live within my means.

    I stood for the local council in May but lost (in part) because nationally we are failing to get across the message of what we have done for low income earners.

    The truth is that despite the tax breaks we are still seeing prices outstrip income. I could live with that except that last year the richest people in this country saw their incomes go up by 5%. Many people I know simply don’t believe us when we say that we have closed loopholes to make rich people pay 5 times more in tax than before.

    What we need is a simple payment threshold below which rich people are not allowed to fall. No matter what deductions the accountants say they are entitled to, no individual should pay less than £100,000 per million made in hard cash to the treasury. I would prefer it to be higher but that would be a baseline I could live with.

    In reality that is a modest figure and it would convince the low paid and the squeezed middle classes that we take seriously that we are all in this together. It would also bring in the much needed revenue that this country needs.

    Rich people are very good at defending their interests. We need to remind them that they benefit from this country being in growth and that they have a duty of obligation to this country in which they live. I do not doubt that we need to get a grip on excessive government spending and that the debt has to be reduced. Every £ borrowed means money being paid to the lenders.

    The people of this country would swallow our message of austerity if they saw that we were taking straightforward, transparent and proactive steps to make the rich pay their fair share of taxation.

    However, I am not holding my breath.

  • pj makes some good points, but only 3% of those with earnings of more than £1m pay less than 10% tax. In many cases it will be a one off thing – e.g. you have been saving up to make a £1m donation to charity, and in the year you make the donation you earn £1m, donate £1m, and therefore pay no tax. If you gave £0.5m two years running the overall effect would be the same, but it would not look as scandalous.

    Of those earning over £10m, only 12 people paid less than 10%. The reality is that most rich people pay their taxes. About three quarters people who “should” pay more than 40% in tax, do pay 40% in tax. About half of the remainder pay 30-40% – which is compatible with paying into a pension and making moderate donations to charity.

    So yes, we should investigate people, and close loopholes, but we won’t raise that much in total.

    All figures from the BBC: http://www.bbc.co.uk/news/uk-politics-17724415

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