27 Apr 2010, 8:28am
personal finance:
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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…

     
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