'Squeezed middle' will have no more money in 2020

Saving and Making Money

Updated on 23 January 2012 | 5 Comments

A new report says that low- and middle-income households face the prospect of falling incomes for years to come.

Households in the so-called ‘squeezed middle’ could have less money in 2020 than they did in 2007, says a new report.

The report’s authors, thinktank the Resolution Foundation, define the ‘squeezed middle’ as encompassing 5.8 million households.

Two examples of groups within this are people who have a household income between £12,000 and £29,000 but no children, and families who have an income of between £17,000 and £41,000 and two children.

The report says that real incomes for the 'squeezed middle' were “broadly the same” last year as they were in 2002, due to wages falling during the economic downturn. And it predicts that this is set to continue. It also says tax credits were important in bolstering that income by an average of £581 per household.

However, the report highlights the ‘disincentives’ for a second parent to go out to work, particularly to full-time work, including the high cost of childcare and the withdrawal of tax credits. Check out Childcare costs pushing parents into debt.

The rising costs of food, utility bills and transport are also hitting this group particularly hard.

Looking ahead, the Resolution Foundation has analysed the Office for Budget Responsibility (OBR) forecasts for growth and incomes up to 2017. It says that, in the period to 2017, incomes will fall and then flatten out. But, by 2020, it says that even in a ‘strong income growth scenario' the average household income would be no higher than in 2007 at £21,900.

And if we found ourselves in a ‘stagnant growth scenario' in 2020, the report says real household incomes will be 8% lower than they were in 2007.

Whatever the economic picture in eight years’ time, the report forecasts that the gap between low- and middle-income households and high-income households is going to continue increasing.

More: Five ways for the middle classes to save | How childcare costs are pushing parents into debt

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