Budget 2010: Helping the “squeezed middle”

Matthew Whittaker is a senior economist at the Resolution Foundation

With economic recovery still far from secured, there remains a need to focus immediate attention on the recessionary hangover being felt by so many UK households. In particular, despite drops in unemployment in each of the last three months, sustained improvements in the labour market remain some way off. Expectations of a sluggish economic recovery in the private sector and a squeeze on activity and employment in the public sector mean that low earners remain vulnerable to job loss and to underemployment.

Low earners are the real ‘squeezed middle’, caught as they are between qualifying for substantial state support and being able to rely on an adequate earned income, and their already vulnerable financial positions have been exposed by the double whammy of credit crunch and recession.

Wednesday’s Budget offers a vital opportunity to support this group by building on the various measures introduced by the Government since the start of the recession. The Chancellor is expected to split any proceeds from lower than expected unemployment and higher than expected tax returns (thanks to City bonuses) between paying down the deficit and stimulating growth. By investing in active labour market programmes designed to help low earners retain or regain independence from state support in the next 12 months, he could both boost the economy and secure future cost savings.

Specifically, we would like to see the Government:

• extend the Job Guarantee to all who have been unemployed for 12 months or longer, including those aged over-25;

• reform welfare-to-work programmes by bringing forward the enhanced skills assessment and assessing employability by time out of work rather than by time on benefits; and

• make it easier to combine jobs and training, by widening eligibility of Working Tax Credit so that training as well as paid work counts for example.

The Government has done much to mitigate the effects of the economic downturn, but it’s vital that the job gets finished before we turn our attention to deficit reduction.

• Resolution Foundation today publishes an open policy memorandum for the next government detailing how outcomes for low earners can be improved in a new fiscal environment.