I really enjoyed two recent FT articles about the squeezed “middle” struggling on £200k household incomes.
The first FT article profiled a 45 year old married lady living south of the river with her husband and kids. Their earnings “nudge £200,000 a year”. The lady says:
“In theory, with our household income, we are in the top 5 per cent of the UK population and yet it does not feel that way,” she says. “If you’re earning millions of pounds, then you’re OK — and at the other end of the spectrum you get everything paid for. We are caught in the middle where we are paying for everything.”
The article lists various things squeezing couples like this:
- School fees. Killik & Co reckon there has been a 342% increase since 1990 in average private school day fees.
- Childcare. Nursery costs have risen by 69% in 10 years.
- Loss of child benefit. This benefit, worth a maximum of £1k per child, feels more symbolic than real to me for £200k households, but the symbolism is powerful.
- House prices. Up 475% in 30 years. And transaction costs have risen from less than 4% to potentially 15%. This means the old ‘upgrade every 7 years’ no longer works.
The article also cites a real issue of pension provision, as the funds required to maintain incomes of anywhere approaching £200k per year are far beyond what most ‘squeezed’ couples can dream of amassing. And more to the point the maximum tax-free pension pot of £2m per couple would not generate anything like their pre-retirement income.
In his article the following week, Janan Ganesh brings wonderful scorn and observation to the uproar that the first FT article caused. Without even mentioning the article’s obvious omissions about lower mortgage costs and lower inflation, and with a down-to-earth groundedness that many of the FIRE community would appreciate, Ganesh reminds us of the average incomes in this country:
“A crude but quick test of someone’s grip on reality is to make [people] guess typical earnings. In Britain, the average weekly wage is around £530 before tax. Oh yes it is.”
But what really had me thinking about Ganesh’s piece is his observations on the modern-day class system. As he puts it:
“The people I grew up with had parents who earned the average wage or thereabouts. Almost everyone I know now makes several times more. … Culturally, much more separates the real middle from the upper middle than the upper middle from the gilded few above them. An £80,000 a year television producer might have a millionaire lawyer around for dinner, but not an estate agent who makes £35,000.
People in my world never seem to have normal-earners as friends. They do not fall in love with people in normal lines of work. Their children do not go to normal schools. I am sure it is just a logistical mix-up.”
Reflecting on Ganesh’s observations, I find them to be true for my world too. And I’ve been asking myself what has been going on.
It feels to me as if two big effects are at play here.
First of all, we’re seeing social mobility in action. Pretty clearly, Ganesh has catapulted himself from ‘an ordinary background’ (in South London) into the elite. He’s done this by getting a very good education and seizing the opportunities that were then presented to him – notably by basing himself in London where he writes as a (mostly) political journalist. I consider the same happened to me in that I went to a top university and it changed my life – particularly as I subsequently moved to London to seek the gold-paved streets.
My worry is that upward social mobility has got worse since my/Ganesh’s day (erm, he’s a lot younger than FvL – Ed.). When I was walking to my (state) primary school my peers were pretty much across the (non-London) bell curve. When I then took the bus to my independent secondary day school, most of the bottom half of that curve disappeared, but not entirely – thanks to government-funded Assisted Places. At my university (despite its elitist reputation) – tuition was free and the government paid significant living expense grants – so I’d say I saw more of the UK’s bell curve than I had seen before at my not-very-exclusive school.
Incidentally one of the guys I met on the school bus, who was a bit older than me, became the UK’s highest earner a few years ago. Yet at school with me he’d had the same slightly-above-household-average background that I had. Like me, he went to a top university and did well. Education really is everything.
These days, Assisted Places have gone – so disadvantaged kids are now far less common at my old school than they were in my day. In London if you are aiming for Oxbridge/similar levels one day, the done thing is to start private schooling aged 4, not aged 11 or 13. You’re driven there in your Chelsea Tractor, so you’re not meeting other folk on the bus. We’re all mating ‘assortatively’ these days – i.e. marrying similarly educated characters in similar lines of work – whereas in my parents’ day the career options for women were truly retarded compared to 2016, and marrying your school-leaver secretary would had very different connotations to today. I’m sure there are other factors that have reduced social mobility but I struggle to remember them all.
There is a second effect that this FT thread is picking up on. Namely that, I believe, the squeezing sensation is a very London thing.
I heard an illustrious (knighted, no less) retailer speak recently and he said that one of the differences between London and e.g. Manchester is that people earning say £60k in London will start spending more by e.g. eating out at smarter places / buying organic food. Whereas people earning £60k in e.g. Manchester will still proudly buy from Asda/etc and, while they also feel like they are doing alright, their (grocery, eating etc) spending behaviour won’t vary so much from £30k earners in the same way. In London, at every income level there are tantalising things to aspire to trade up to, and no concerns about how conspicuous such consumption might be.
Why is the squeezing more pronounced in London? Of course no article like this is complete without mentioning house prices. And one cause of the class rarification is the combination of the high level of house prices and the large size of the city. Homes in similar areas tend to cost similar amounts. Many areas – e.g. Maida Vale, Chelsea, Finchley, Hampstead, Clapham, Acton – have houses of strikingly similar size/shape/amenity – so price variation within areas can be limited. But the variation across areas is significant; Acton vs Soho are almost an order of magnitude of each other (see Find Properly’s very cool interactive map).
And the size of the city means that if you live in Finchley you are highly unlikely to use the same schools as people in Becton, Acton or even Maida Vale. It takes me longer to see friends on the other side of the river than to get to a commuter town 60 miles away. So the school gates conversations will be more narrow demographically than I remember them being in my rural upbringing. I know people at work who are below-average-wage earners, but I don’t live anywhere near them. My kids won’t know their kids. This starts to explain Ganesh’s “I don’t [know] normal earners”. Those friends of mine on the other side of the river are not as good friends as they once were.
And of course, bankers. Or financial services. London has the top jobs in finance, as in so many other sectors. And the top jobs in finance earn simply staggering amounts of money compared to the national average wage. Even ordinary jobs in finance can earn £200k+. The £80k TV producers and the millionaire lawyers and the star political journalists probably don’t socialise with any Premier League footballers. They might not know any Oscar-winners, pop stars or other celebrity rich types. But they will almost all know people in banking, or asset management, or the top law/accountancy firms. And whereas only the top <1% of football, drama, music stars earn £200k+ on a regular basis, it feels like the top >10% of bankers etc earn £200k, and can expect to do so for many years on the trot.
The policy implications of what’s going on aren’t obvious.
In theory the London idea of insisting on ‘social housing’ in every neighbourhood, implemented via development levies, helps to avoid hastening the ghettoisation. But it doesn’t feel very successful from my limited understanding of it. And it certainly won’t encourage the £200k brigade to use local state schools.
The state schools have got a lot better in London in the last 20 years. But the competitive pressures seem to have worsened faster, and private schools have upped their game too. So the social pressure to fund private schools seems at least as strong as it was in my day. And while I am nostalgic about those Assisted Places, I can’t see the political case for reinstating them.
Obviously if something could be done about house price inflation that would be A Good Thing. The obvious thing to be done is loosening planning restrictions, and improving transport links (which of course have the opposite effect). But the political implications of this are enormous.
The upwards pressures on pay are legion. Bankers, CEOs, hedgies not to mention dear old active fund managers – everybody looks around them and finds ways to argue for 10% increases when the people who populate cost centres are struggling to get an inflationary pay rise. What is hard is to see free-market-friendly solutions for this. Ironically the gradual moves to more transparency, which I applaud, probably help the already best-paid more than anybody.
Finally, and while it pains me to say it, part of the issue is how London-centric the UK is. The top people are almost all here. The best hospitals, the best schools, the best universities (pace Oxbridge), the best businesses, the best political jobs, the top professionals are all in London. It makes the city amazing, but it makes it a pressure cooker. And with all that glittering success will come a lot of rich folk moaning and griping.
14 thoughts on “London’s squeezed middle”
I’m glad you commented on that article: I find it interesting to hear a high earner’s perspective. We lived for some years as expats in London, so inhabited that upper middle class world brushing against the upper (with the help of expat perks). It was fascinating. We wanted to stay and localise, but we knew that we could barely pull it off on our own (with housing and school allowance withdrawn), and we weren’t really sure our kids would be able to find jobs and housing in London as adults. Also, as foreigners who are not super-rich, we doubted our ability to provide our children with the connections and class markers that seem so all-important in England.
Now we’re back in Germany, where income inequality is much less of an issue. There are MANY cities, of all sizes, to live in. The entire country is like you described Manchester: proud to shop at ASDA (or in this case, ALDI) There’s no single (or two) elite university that you *must* attend to have doors open, and higher education is still free. I miss London – and all its aspirational shops — with all my heart, but I feel like we made the best choice for our children.
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Dorf – thanks for your very interesting reaction. Maybe one angle is that the upper end in the UK/London is higher than the upper end in Germany (I think, especially if you have to live in Frankfurt to achieve it), and thus the ‘Oxbridge rewards’ are higher, and thus the stress levels / competition are higher? Which reinforces the same old competitive gravy train?
p.s. For what it’s worth, Janan Ganesh himself is not Oxbridge, and he’s doing fine – so there are definitely far more viable choices than just Oxbridge. But if paying 10% more got your kids a 1% advantage, would you stump up? And if the best higher education is free (and, in Germany, low quality), you can’t do this.
What, are you telling me higher education in Germany is low quality? (I’m also an expat in Germany, so I genuinely have no idea). “You get what you pay for”— ?!
In terms of the best universities, that’s what I’m telling you. Check out the rankings. For instance on this one UK has 4 in top 10, highest ranked German one is number 60 – http://www.topuniversities.com/university-rankings/world-university-rankings/2015#sorting=rank+region=+country=+faculty=+stars=false+search= –
Hi again FvL, responding to your list of the top universities below, that actually is the crux of why we left London and why we feel so relaxed in Germany: It is because of the absence of elites, and the consequent lack of gatekeeping to access them. If every university in Germany is basically the same low quality (OK, I guess, call a spade a spade), with none really distinguishing themselves except in a few select fields, then what matters in finding employment is that you’ve attended any one of them, not only one of them.
You mentioned that your own children attend school with a much less economically diverse group of kids than in your day. That was also a striking feature of our gated community just outside of London in Surrey. It was international, but not economically diverse. The neighbours were lovely: everyone was socially conscious, globally aware, and very rich. A typical comment after school holidays, “We went to India for the Fall Break. We stayed at a lovely spa and saw the Taj Mahal, but the best thing was that our children (voice drops a register) got to see *real poverty*. They have so much more gratitude now.” All said and done with the best of intentions. Because I volunteered at a soup kitchen in Westminster, I knew you didn’t have to go that far to see real poverty…
Your blog post stirred up a host of memories of our extraordinary four years in the UK. I obviously question whether it was the right decision to give up our fun, luxurious London life for safe as houses but dull as ditchwater DE. 😉
Thanks for commenting on this – I also read the articles in the FT this weekend, and I find it fascinating! I have to say I do feel like part of the squeezed middle, but recognise I am far from it – but the reason I feel squeezed? I am saving like mad to put as much aside as I can, but London does but a slant on it. Housing you cant get anything much where I would want to be for less than about 600k, then add in commuting costs and food etc. – all adds up!
Interesting to see how other people see this response, I do find it fascinating!
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Watching colleagues in a similar position, one of the stresses was a feeling that you have to run to stay still. I heard tonight somebody bought a property for £60k less than they’d been prepared to pay – but it’s much more common to hear of properties moving a few percent (£20k+ !) away from the buyer instead. Which means another year or two of hard work saving. Classic hamster wheel stuff.
Definitely something in that – I have been lucky with owning a property, and only moving once since I first bought, but I dont feel the need to keep up with the Jones’s. I do get ribbed at work when I refuse to buy coffee or take in my own lunch, but it saves money and tastes nicer – thats why most of my colleagues work because they have to – not because they want to! The Hamster wheel continues!
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“feeling that you have to run to stay still…”
Hedonic adaption at work perhaps?
Personally think most British people like moaning and it doesn’t really matter what class or amount of money you earn, people will always find something to whine about.
If these people don’t like the hamster wheel then get off I say 😉
But the points raised about the narrowing of social circles are very interesting. I’ve just moved offices to near Kensington and so have only just seen the Chelsea tractor brigade in action for real, it is a sight for sore eyes as I stroll past them while they’re stuck in log jams of traffic. And you can definitely tell what kind of school kids go to as they walk past you in the morning around that area.
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I and my brother are public school and Oxbridge, but his was a free place with the “Dulwich Experiment” and mine a half scholarship. But we don’t live it up, as he puts it “we wear visiting clothes that others would wear round the house, and round the house others would garden in”. But Primark and charity shops for use, we both live in London Z6 but work from home, salaries not large but expenses minimal, and I plan to FIRE before I’m 50. My friends are Oxbridge, but not high-fliers, and spend and earn within their means, and don’t seem squeezed. I don’t envy the high-pressure spendthrift lifestyle other contemporaries have chosen. Its sunny today, I think I’ll spend the afternoon in the garden.
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Hi FvL, excellent post.
The squeezed middle is of course a myth; everybody always feels squeezed (apart from the top 0.01% perhaps).
There was a survey on this (probably many surveys) where basically everybody said they would be happy if they could just earn 20% more than the do today, which is of course exactly what the people earnings 20% more than them also said.
I guess it would seem a bit (very) ridiculous to most people that a couple could moan about only earning £200k. Most people would consider that an almost lottery-like income.
On the social mobility thing, I’ve only really started to have a view in the last few years thanks to working in different sectors.
I would say there is mobility at the extremes, i.e. if you’re especially talented then upward mobility is possible, and vice versa, but for most people who are average or thereabouts there is probably relatively little mobility.
For example, when I worked as a mechanical engineer in the 80’s the workforce was split about 90% working class, 10% middle class, 0% upper class (guessing class based on accent, where standard english = middle class).
Fast forward to the 90’s and 00’s when I worked in IT and it was perhaps 25% working class and foreign, 70% middle class and 5% upper class (one thing noticeable here was that our clients in Lloyd’s of London were perhaps 50/50 middle/upper class).
Now that I’m working close to the finance industry I’d say it’s about 5% working class (and even then not ‘very’ working class), 70% middle class and 25% upper class.
So the change in demographic depending on industry is very striking.
Or more obviously, the fact that you don’t get many upper class people flipping burgers in McDonald’s is a bit of a giveaway.
Looking back through your post there are a lot of things I’d like to comment on, but I have waffled on for long enough. Thanks again,
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There is a tragi-comedy element to all this. It does seem that Londoners are more susceptible to this kind of thing than the rest of the country.
I once had a conversation with a mate where I pointed out that London s greatest gift to the UK is sucking up the lions share of all the twats leaving the rest to have a better time in their absence, but he rightly pointed out that ‘anywhere nice is absolutely teeming with arseholes’ so I guess it isn’t as black and white as all that.
From the outside looking in I would say some londoners without kids are having a fun time, but the families are all existing in some kind of self-induced economic hell. Best off well out of it..
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To be a squeezed middle, you have to define what the middle class is made of. It used to be business owners sending their kids to public school. Now it appears to be anyone who shops at Waitrose.
For anyone interesting in implementing their FIRE dream, London was the bet place in the UK to be … 5-6 years ago. The opportunity to buy a home and watch it increase 100% could be had nowhere else. On top of this you have free transport to work and jobs that paid more than the rest of the UK.
London is full distractions and you can feel poor even when you are not. I sit here typing this eating my packed lunch and I’ll try not to let it get to me that my coworkers will be having lunch at a wine bar.
Now of course, because London was the place to be, everyone came here. Now, if you are young and have no home of your own, you should go elsewhere. It’s just another cycle to be aware of and not get caught up in.