Middle-income and self-employed households risk being left behind amid a broader growth in earnings, worsening income inequality in Britain, a leading think tank has warned.
According to research from the Institute for Fiscal Studies and the Nuffield Foundation, the social wellbeing charity, the government is running out of tools to boost the pay of middle-income earners and low-paid workers in self-employment.
“While it is easier said than done, we must find additional ways of restoring widespread earnings growth,” Robert Joyce, deputy director at the institute, said.
Britons are facing the worst squeeze on their real incomes in half a century, driven by surging inflation. Higher energy and food bills place the highest burden on poorer households, which on average spend almost double on necessities compared with the highest-earning households.
While poorer workers benefit from government policies to raise the minimum wage and expand tax credits, these measures do not help those in higher wage brackets. “They cannot help average earners who continue to see worrying wage stagnation and minimum wages cannot help the growing group in self-employment,” Joyce said.
The minimum wage will be raised to £9.50 in April from £8.91 for those aged over 23. It covers two million workers, or 7 per cent of the total workforce.
The institute says that the minimum wage has helped to boost earnings for low-paid workers, but has had little impact on the wider income distribution. “The policy cupboard beyond tax credits and minimum wages is bare,” said the report, whose chairman was Sir Angus Deaton, the Nobel prize-winning economist who has pioneered research on how household spending can be used to measure poverty.