Report by Resolution Foundation, a think tank established to raise awareness of the group people in employment but earning low incomes. This presentation looks at how they fare in terms of the job market, incomes, the housing market and how the recession is affecting them

1. Squeezed: the low earners audit

2. Background to the audit First major study of group, published March 2009 First update with focus on employment, published August 2009 Numbers in, and composition of, group varies across policy areas cf. housing, skills training and long-term care Took wide view to uncover range of challenges

3. Defining low earners For analysis, number of ways of defining group upper threshold of median income lower threshold of independence from state support harder to capture Detailed analysis of benefit-receipt in BHPS found 30 per cent of adults in GB within group Also used 30 per cent of households directly below median (i.e. income deciles 3, 4 & 5) as proxy gross, disposable and equivalised income bases

4. Household composition 7.6 million low earner households 4.7 million non-retired households 2.9 million retired households 13.7 million adults in low earner households 29 per cent of total adult population 4.3 million children 32 per cent of total child population

5. Social class Over 60 per cent of heads of low earner households are in social classes C1 and C2 Over 80 per cent are in classes C1, C2 and D

6. Financial health Low earner households spend nearly all of their disposable income each week Income is frequently variable, due to the nature of work patterns Have low levels of savings and are less likely than high earners to have life, income protection and critical illness insurance Debt levels have increased rapidly in recent years, with a growing number expressing difficulty making repayments Faced higher levels of personal inflation in 2008 than high earners Lack access to financial advice

7. Financial health 78 per cent of low earners were in poor financial health during economically benign period 12 per cent were in an acute position

8. Financial health Low earners spend nearly all of their disposable income each week Low earners allocate a higher proportion of their weekly expenditure than high earners to essential items such as housing, food and fuel

9. Financial health 24 per cent of low earner households spent more than one quarter of their monthly income on debt repayments in 2008; up from 12 per cent in 2005 35 per cent of low earners have no savings and a further 21 per cent have savings of less than £1,500

10. Financial health Often on threshold of state support from sources such as fuel poverty social tariffs and Warm Front grants Low earners have experienced much higher levels of price increases than high earners

11. Financial health: Chris 49 year-old male, 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

12. Jobs and skills Low earner households more vulnerable than others to effects of job loss/reduced income lack of safety net less likely to receive substantial redundancy payment More likely to face uncertainty because of concentration in SMEs and self-employment 16 per cent are self-employed; 10 per cent of high earners Also concentrated in service industries which face sustained period of reduced demand Less able than high earners to progress in labour market or return to the workforce following redundancy

13. Jobs and skills 50 per cent of low earners have no qualification above GCSE/O-level. They are more likely to have GCSE’s and A-Levels than other members of society Workers in larger organisations and with higher starting levels of skills are more likely to receive training from employers Government schemes are largely focused on those with lowest levels of skills

14. Jobs and skills: Anne 56 year-old woman, renting from housing association Husband left last year, significantly reducing her income Lost job as pt pharmacy 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

15. Housing Low earners have found themselves priced out of the housing market in the last decade Falls in 2009 have not been big enough to reverse this trend, particularly with credit restricted Buyers from recent years are likely to have stretched themselves more likely than others to be in negative equity Access to social housing has also been restricted many therefore have little option but to rent privately fewer rights and possibility of eviction if landlord fails to keep up repayments

16. Housing Overall proportion of low earners owning their own home has changed little, but fewer are entering the market Affordability has reduced more significantly for low earners than for high earners in the period since 1977

17. Housing In 2008, 3.6 per cent of low earners reported being in negative equity, more than among any other income group The proportion of low earners with LTVs in excess of 75 per cent increased significantly between 2007 and 2008

18. Housing: Julie Female in her 40s, 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

19. Public policy Overall, low earners have become poorer relative to other groups since 1977 However, have benefitted from a number of policies since 1997: tax credits national minimum wage investment in public services Helped shift tax-benefit balance into positive Number of recession policies will help group But remain largely overlooked – as evidenced by 10p tax row Unless the group is recognised, likely to be among biggest losers in period of fiscal contraction

20. Public policy Between 1977 and 1997, low earners became poorer relative to high earners and benefit-dependent households Since 1997, introduction of tax credits, extension of cash benefits and real-terms increases in public expenditure have helped low earners close the gap with high earners slightly

21. Public policy Increases in public spending and introduction of tax credits has driven improvement in low earners’ tax-benefits balance In 1977, non-retired low earners received £0.76 in benefits for every £1 tax they paid In 1996/97, they received £0.97 In 2007/08, they received £1.06

22. Low earners and voting Since 1997, support for the Government among low earners (as represented by C1C2 group) has differed from the population as a whole on both the up-side and down-side In June 2009, 14 per cent of C2 group said they would vote for UKIP, compared with 6 per cent among the population as a whole In May 2009, 17 per cent of low earners said they would not vote in a general election, compared with 14 per cent among the overall population

23. Conclusions Low earners have been squeezed, exposed and overlooked during economically benign times The recession is highlighting their exposure and focusing attention on the group more at risk than benefit-dependent households of a drop in income due to loss of work and more likely to have credit commitments less likely than high earners to have a safety net of savings and insurance and less likely to be in a position to return rapidly to employment following redundancy In longer term, position on threshold of state support means that fiscal contraction represents a particular threat to them risks squeezing them still tighter by reducing the benefits such as tax credits that some of them may be entitled to, increasing the taxes that some of them may pay and reducing the public services that they can consume.