This report shows how income growth for low-to-middle income households in the UK virtually stagnated over the past decade, despite steady GDP growth. The group comprise about one-third of the population of working age. Only the enlargement of in-work benefits prevented the income position of the group from falling further behind. Given current policy settings, the income position of low-to-middle income households is likely to deteriorate further, even under reasonably optimistic assumptions about the performance of the economy.

Among the most important reasons for stagnating income growth in the lower end of the income distribution are a declining share of national income taken by wages (with a higher proportion going to profits), a higher proportion of labour compensation taken up by non-wage costs like insurance and pensions contributions, poor training at the lower ends of the skills spectrum, and high childcare costs.

Important recommendations concern improving the skills formation system at the lower and intermediate ranges of the skills distribution, more generously funded childcare, and better institutional processes to create pressure on employment sectors that can afford to raise wages above their current levels.

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