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Threat to British middle class is bad for the whole economy

Cover of  by Tim Morgan

The middle class is becoming an endangered species. Perhaps that sounds alarmist, or seems like special pleading for a group of people that is still relatively prosperous.

But the peril is real ? and it is bad for the whole economy, not just the downwardly mobile bourgeoisie.

The existential threat to Middle Britain is highlighted this week in a report into child poverty and social mobility from Government ?tsar? Alan Milburn.

It points out that high house prices, university fees and youth unemployment ? currently around 20 per cent ? have created anxiety in many average-income parents that, in the game of social snakes and ladders, their children will be on the slide.

Young adults themselves fear they will not be able to afford a home and children until their forties, and that they will face a precarious old age. Those worries are well-founded.

Consider the following statistic, from a new book by Dr Tim Morgan, admittedly a rather apocalyptic economist. He notes an average earner in Britain ten years ago could have bought more than a thousand barrels of oil with their salary. Now, they can afford only 328.

Normal people do not go around buying hundreds of barrels of Brent Crude. The relevance of the figure is that their reduced oil-purchasing power makes it harder to pay for everything, from utilities to the weekly food shop.

Consider also the Help to Buy scheme. In essence this involves the state stepping into the role most parents can no longer afford, that of giving young buyers a start in the property market. Its very existence is a blatant admission of middle class decline.

Paul Cleal, a partner at accountant PwC who sits on the Milburn commission, says the lower end of the middle class is under the darkest cloud at the moment, but that financial insecurity is spreading up the social scale.

There is a danger, he believes, that if nothing is done, the middle class, as we know it, could be extinct within a couple of generations. The effects would be profound. A reduction in middle class spending power and confidence is bad news for a whole range of businesses.

The gradual decay of the middle class has its roots in the competitiveness crisis afflicting many developed countries, including the UK.

Globalisation has left mid-level employees with a dwindling share of the new wealth being created, as admin jobs have been automated and skilled manufacturing work has migrated to cheaper locations.

Politicians have tried to address selective aspects of middle class impoverishment, such as energy bills, but they are reluctant to look the issue full in the face, because admitting voters may face a long slow impoverishment is hardly the way to get elected.

Instead, during the ?boom? years, officialdom favoured a climate where citizens could obtain cheap and easy credit, sometimes regardless of their ability to pay it back, a strategy that unravelled with the financial crisis.

Governments played the same game ? and the consequences of that are writ large in the UK, the eurozone and the US where political wrangling over the monstrous $16.7trillion debt this week threatened to drag the world back into recession.

Ordinary suburban families, it seems, find themselves at the mercy of implacable global forces, but governments and businesses are not entirely powerless to resist. Employers could play their part in promoting upward social mobility by opening their doors wider to bright recruits from poorer backgrounds.

The more meritocratic we are as a country, the better our chances of improving productivity and innovation. The Government and companies can work together to raise educational standards and skills levels, to give more young people the chance of a better life.

More must be done to promote advanced manufacturing, and to restore our industrial base. The foolish complacency over the loss of skilled blue-collar jobs in the US has resulted in bankrupt cities such as the once thriving motor metropolis of Detroit.

Here we have failing towns such as Burnley, Middlesbrough and Hull, which The Economist last week claimed are beyond saving and should be left to die. Politicians must also stop their cheap and divisive potshots at the pensions system and at supposedly well-off older people.

Suggestions that pensioners might be stripped of some entitlements and worse, that higher rate tax relief should be removed from pension savings, destroy incentives to save for a decent retirement.

Social climbing has a bad name, but high growth economies are strongly associated with social mobility. Rescuing the middle class from oblivion is paramount if Britain is to have a prosperous economy and a stable society in future.

Life After Growth by Tim Morgan published by Harriman House, £16.99.

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