A recent report has found that the average low to middle income family will not see their finances return to where they were pre-recession until at least 2020.
The findings come from the independent think-tank the Resolution Foundation. Its ‘Squeezed Britain’ study shows that low to middle income households, who take home on average £20,000 a year, would also have to save for 22 years to buy their first home.
The report looked at the ‘daily struggle’ of such families. It is estimated that nearly one third of working age homes in Britain—5.8 million households—are in the low to middle income (LMI) bracket.
The findings include details such as; 45% of people were unable to afford a holiday, 40% were not able to replace worn or broken furniture, and nearly a quarter of people could not afford one night out a month with family or friends. 8% struggled to find money to buy decent shoes.
The research suggests that incomes for these household will continue to decline before levelling out in 2016-2017. If this is then followed by strong economic growth this income bracket should start to see the same levels of disposable income they enjoyed before the recession by 2020.
However, if the growth doesn’t occur, real incomes could end up being 8% lower than they were in 2007. Both scenarios will lead to an even bigger gap between low and middle income earners and high income earners.
The Squeezing Britain study also highlighted the difficulty of getting onto the property ladder for LMI earners. Basing their figures of saving of 5% of yearly salary for a first-time buyers deposit, in 1991 the average LMI household took 4 years to save for a deposit for a house, this figure rose to 8 years in 2001 and by 2011 it had more than doubled to 22 years.
Due to the rapid increase of house prices coupled with the larger deposits required from mortgage lenders and recent pay freezes, the study warns that many under 35s will never be able to buy their own property and will live in rented property their entire lives.
Most of the people who fall into the LMI bracket work in retail, manufacturing, construction or the Health Service. They have typically found themselves with stagnated wages since 2003 and have become more reliant on tax credits over the years. They will be heavily affected by proposed cuts to tax credits, and the rising cost of living will hit them the hardest.
41% of their monthly income pays for household bills such as rent, energy bills, food and transport.
The study says: ‘Job insecurity and low pay are the pervasive feature of Squeezed Britain. Theirs is a daily struggle to keep up with the rising costs of essentials and to meet goals such as saving or buying a home.’
It estimates that the average yearly food bill has risen by £427 over the past ten years.
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