In the years running up to 2008, faltering employment income left the UK government doing more to support low to middle income households. From 2003 to 2008, the only major source of rising incomes in low to middle income households was tax credits. Now, fiscal constraints make it all but impossible to repeat past growth in support. These constraints stretch into the long-term as new demographic pressures start to bite.
The process of rebalancing income growth to employment income will be even tougher because many households now receive major support from means-tested benefits. As a result, many low income households take home only around 55 to 65 pence of every extra £1 they earn. As employment income becomes the main source of rising living standards, these households will be running up a down escalator.
Read more about these issues in the Commission’s final report, Gaining from Growth