27 Apr 2010, 8:28am
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  • what happened to the middle class in the UK?

    Reading the Daily Torygraph ranting about how higher earners would be £18000 a year worse off as a result of various dastardly tax changes  I was struck yet again by the Telegraph’s curious concept of middle class. Don’t get me wrong, I’m all for people avoiding tax as long as they keep it legal, but it was this quote

    said that the changes would be significant for many people. “£175,000 is a good salary, but it’s not one of those banker salaries that makes people horrified,” said Jane Beverley, its head of research. “These people will be losing 16 per cent of their take-home pay, and that’s not money that can easily be replaced.”

    Diddums. My heart bleeds. Really it does. The Telegraph generally carries on as if a six-figure  salary is a typical middle class salary. They need to take a reality check. I have swiped this image from this TUC report on the income distribution in the UK. Okay, so they have an axe to grind, but this wikipedia article corroborates it. You can find your own place in the pecking order/rich list at the Institute of Fiscal Studies Where Do You Fit In page.

    Income distribution in the UK

    Income distribution in the UK

    Let’s just say that these poor saps who are only earning £175k aren’t middle class, certainly if income is used to define middle. They’re perfectly entitled to be hacked off at losing 18k, and they might like to know that there is an election on if they want to push their views 🙂 The real middle class in Britain seems to be running on the 20-30k p.a. mark.

    The TUC report does show what happened since the 1960’s  however.

    The six decades since the Second World War have brought dramatic changes in the social and class structure, resulting from the process of de-industrialisation and the emergence of a service economy. Thus the proportion of people working in manufacturing fell from 25 per cent in 1971 to 11 per cent in 2006. The effect has been an upward drift in the class classification of households, with a steady fall in the size of the traditional manual working class and a steady transfer from factory jobs to clerical and white-collar jobs.

    which explains why so many people are described as middle class now – we held on to the job classification description, and outsourced most of our working class jobs to India and China. The Americans, with some of their delightfully straightforward honesty, follow the money, and as a result they don’t screw up like this when thinking of the middle class.

    Figure 1, however, based on income rather than class, points to a very different interpretation of the shape of modern Britain. It shows that households are heavily concentrated within a narrow range of incomes in the bottom half of the distribution. Indeed, almost two thirds (65 per cent) have an income that is less than the national mean. […] Indeed, one group of academics describes Britain as ‘onion-shaped’ – with a few at the top, a bulge of people below the middle and fewer at the bottom, though more than in the diamond shape.

    So it follows that a middle class salary isn’t what it used to be in the pecking order.

    On the other hand, those moving up the class ladder have not progressed to income levels enjoyed by the middle class. Instead there has been a rise in the proportion of the population living on incomes below the mean. Those who have risen through the class hierarchy to swell the ranks of the ‘lower middle class’ (clerical and administration workers, supervisors, lower-tier managers, owners of small establishments such as corner shops), have mostly ended up in a lower position by income distribution than where they would have been as members of the skilled working class a generation earlier.

    Thus the explanation of the Telegraph’s position is that they are adopting the 1960s job position definitions and applying it to the current position, ie defining middle class by where those jobs would now be. We’d now call them upper middle class.

    I observed this first-hand. When I started work, the relative living standards of people who were working at the level I am now were much higher compared to others than I would say I am now. I’m not asking anybody’s heart to bleed for me, because the absolute living standard I have is considerably higher than they had, with the possible exception of housing because I chose to pay my house off rather than run a larger mortgage for a longer term.

    What has changed dramatically, however, is the work environment. Efficiency in using capital is bought at the cost of a certain degree of relentless inhumanity.  The power balance between capital and labour has shifted towards capital and away from labour, resulting in a polarisation to the top of the wage scale, the fat cats, heads of pretty much any organisation etc, and low-end jobs which can’t be outsourced (cleaning, care, etc)

    change in availability of jobs at income points - middle ones have dropped between '79 and '99

    In the 1970s wages were 65% of GDP, whereas in 2007 it is 53% according to page 25 of the TUC report. This represents a shift of over 10% in favour of capital. And capital is even more unevenly distributed than income, a net worth (including unmortgaged house equity) of more than 270k puts you in the top 5%. So the power shift from labour to capital, the increased concentration of income around the lower end to compensate for astronomical salaries of fat cats and the low net worth of people in Britain point to Danger Ahead, Hard Times coming.

    I predict a riot at some point…

    Yes, even I was surprised when a reader linked on my blog recently to an article (it’s in a recent Weekend Reading, forget where) saying a typical middle-class income was much more like £20K.

    You get so skewed, living in London – where to be fair you need to find £250K for a two-bed flat in a mediocre area, and around £500,000 for a house some place with good middle-class schools etc… the latter being about 3x £175K.

    Only roughly 3.5million UK workers are higher rate tax payers, which is another incredible stat.

    I’ve had fun winding up the guys at work today with this info – I nearly won £20 off one guy who flatly wouldn’t believe it 🙂

    Creeping lifestyle inflation is what does it for people. The DT guys on £175k may well struggle to make ends meet if they drop another 18k in tax, even though 18k is more than I live on at the moment.

    Good luck with the house search, the coming financial storm should do you good. It’s an ill wind and all that!

    […] What happened to the middle class in the UK? – Simple living in Suffolk […]

    1 May 2010, 2:07pm
    by Niklas Smith


    The reader Monevator referred to was me 🙂 The article I linked to is here: http://www.economist.com/world/britain/displaystory.cfm?story_id=15777629

    One of the things I admire about the Economist are these magisterial articles that should really set the tone of the debate if only enough people read them. (They did another excellent article on the “broken society”, concluding that it was mainly exaggerated.)

    The Sunday Times is as mathematically illiterate as the Telegraph: when they condemned the Lib Dems’ policy of getting rid of higher rate tax relief on pension contributions (everyone would get the basic rate relief) they quoted an “expert” saying that this would hurt “middle income earners”!

    That Economist article is truly brilliant, and I am humbled in that much of what I was driving at is summarised so elegantly in their phrase

    “The result is a middle class more vulnerable to hardship and insecurity than is often grasped.”

    I was surprised by that too, as indeed the fact that HRT affects only 12% of taxpayers.

    I still remember taking a trip to the UK after our wedding in 2006. In the paper, we discovered that teacher’s salaries in the UK were around 18K–more or less on par with the pay in France. But we were in London at the time and had noticed some housing prices . . .the horror! We decided that working a year or two in the UK was not in the cards for us!

    […] Living in Suffolk asks the question What Happened to the Middle Class in the UK? It’s a great read that puts the concepts of tax increases into perspective at a time when […]

    SIF – London property prices are a bit of an anomaly, local pressures drive costs up. Large tracts of Central London don’t have any residential family housing, and the city has a population that includes some extremely high earners.

    This site indicates the London market operates at over 5 time prices to average earnings ratios, whereas the rest of the UK averages about 3.5 to 4 times.

    At the moment the UK has lower taxes than you do in France so at the moment an earnings multiple of 3-4 is sustainable. We are also collectively crazy on buying houses rather than renting in Britain, it is one of our cultural quirks.

    […] nasty little matter, what I had seen of the world so far was a reasonable expectation of getting a middle class job in a research facility in industry,  with a salary that rose quickly from the graduate scale, and […]

    […] the myth of our culture is failing and our economy is so damaged that it does not have enough middle-class jobs requiring a university degree, then we should let them make their own decision, not sell them […]

    […] decade. If our expectation of the economy includes providing jobs that enable the average person to bring up a family and buy a house outright by the time they retire, we’ve been living beyond our means ever since the […]

    […] d’année 2011. Parce qu’ici, sur Albion, les médias utilisent le terme middle class (classe moyenne) pour parler de ces pauvres employés de banque qui gagnent moins de 200 000 […]

    Bump. Your riot prediction turned out to be correct.


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