This briefing provides an overview of the low to middle income (LMI) group, a group characterised by the extent to which, despite being in work and largely outside the system of means-tested benefits, they live on the edge, vulnerable to even modest changes in circumstances. This overview is especially relevant to current social policy after the statement by the new Prime Minister, Theresa May, that the government will focus on working families with relatively low earnings – those who are ‘just managing’. Identifying the policy interventions that can support this group and elevate them into a more comfortable position requires a deep understanding of precisely who constitutes the ‘just managing’ and the barriers to improved living standards they face.
The Resolution Foundation identifies around six million working households and ten million adults as being in the LMI group. Despite five-in-six of these families having at least one member in full time work, nearly four-fifths of these individuals earn less than £21,000 (the median gross wage). Two-fifths are at a stage of life that brings with it significant cost pressures – having children. Indeed, children are twice as likely to live in low to middle income families as in higher income working households.
Workers across Britain have experienced a seven year squeeze on wages, coming on top of a sharp slowdown in wage growth that preceded the financial crisis of 2008. LMI families have been further hit by cuts in the generosity of tax credits in recent years. Taking housing costs into account, the Foundation finds that typical incomes in the group are at a 13 year low.
Low to middle income households are particularly exposed to pressures associated with housing. In 1995, younger LMIs were twice as likely to own their home than to rent it privately; today that situation is entirely reversed. A typical LMI household would need to save for 22 years to build the required deposit for a first time buyer home, up from just three years in the mid-1990s.
When all of their expenditure is accounted for, LMI households are left with no disposable income each week. 68 per cent have less than one month’s salary put by and 40 per cent are concerned by the level of debt they hold. The Resolution Foundation is also concerned that this precarious financial situation is persistent amongst the LMI group, with two-in-five of today’s LMI households having remained in the group for at least 15 years.