Budget 2013: Data expose ‘squeezed middle’ myth

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Forget the “squeezed middle” and ignore claims “the poor are getting poorer” for these faddish phrases have a flaw. They are not entirely true.

Unfashionable as it is to say so, the squeeze on incomes appears to be tightest for the gilded classes.

In the annual Family Resources Survey, the income of the 95 percentile – the households that have higher net incomes than 95 per cent of the population – has fallen 4.6 per cent in real terms between 2007-08 and 2010-11, a bigger drop than for all groups with less cash to spare.

The official Annual Survey of Hours and Earnings shows the same pattern. It asks employers to supply wage information for everyone who has a national insurance number ending in 14. In the 2012 survey, it shows nominal gross weekly earnings of full-time employees at the 90th percentile – the highest earners – had risen 2.9 per cent in 2012 compared with 2009, less than the 3.6 per cent gained by the median worker. Employees in the 10th percentile of wages – the lowest earners – rose 4.3 per cent.

Meanwhile, income tax return data, collated in the Survey of Personal Incomes shows the number of people declaring incomes over £100,000 a year has fallen from 629,000 in 2007-08 to 588,000 in 2010-11.

These sharp drops in market income have been compounded by tax and benefit changes that have hit the rich hardest and spared the middle.

The Institute for Fiscal Studies estimates that the announced tax and welfare changes set to take effect between 2010 and 2015 will hit the household net incomes of the richest 10th by almost 8 per cent, compared to a 3 per cent on middle-income households.

There are data quality concerns with each of these sources, but the consistency of the message is stark.

Paul Johnson, director of the IFS, says: “The people thought of as middle England is least squeezed by the tax changes. This seems to have got mixed-up in people’s minds.”

It might just be time to pity the rich.

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