People on low to middle incomes have had their ability to buy their own homes dramatically reduced

People on low to middle incomes are facing a "perfect economic storm", which is cutting their living standards and dramatically reducing their ability to buy their own homes, new research will show this week.

The independent Resolution Foundation is to launch a major inquiry into living standards among the so-called "squeezed middle", having identified economic trends – in existence since the 1970s – that have led wages for this income group to grow at a slower rate than the economy.

The foundation, which aims to improve the lot of 11.1 million people, will reveal evidence that home ownership is slipping out of the reach of those living in households with below-median earnings.

It defines low and middle earners as those with incomes between £12,000 and £30,000 for a couple with no children and up to £48,000 for a couple with three children. Broadly, they are defined as not wealthy enough to benefit from private markets but too prosperous to receive benefits from the state.

The foundation will say that 41% of young low-to-middle earners live in privately rented accommodation compared with 14% in 1988, suggesting a dramatic reduction in the number of those who can afford to get on the housing ladder.

It will also highlight evidence showing that someone at the lower end of these incomes will take 45 years to accumulate a deposit to buy a home if they save an average 5% of their income a year. This compares with less than 10 years during periods in the 1980s and 1990s.

The foundation, which is not allied to any political party, says low-to-middle-earning households have become more exposed as a result of the recession and the contraction of the consumer credit and mortgage markets, alongside recent rises in the cost of living.

'Cost of living crisis' – Ed Miliband



The findings will be seized on by Labour leader Ed Miliband in a speech at the launch. Miliband will warn of a "cost of living crisis" as the impact of tax and benefit changes, public service cuts and rising prices threatens families with children the hardest.

He will also say that Labour is widening its focus from its traditional battle to reduce inequalities between the richest and poorest on to a group in the economic middle ground whose problems have been overlooked by politicians.

"For many decades, the proceeds of growth and rising prosperity benefited the vast bulk of those working on middle incomes," he will say. "However, over the last 20 to 30 years that once-safe assumption has broken down. While those at the top have done well, middle and low earners are no longer guaranteed the proceeds of growth. Our economy is increasingly unfair not just for those at the bottom but for many of those in the middle as well."

He will argue that the coalition government is adding to the problems of the "squeezed middle" by cutting tax credits and raising VAT.

"The task for the future is to build a different sort of economy; a high-quality economy with quality jobs and a better quality of life. That means good jobs at good wages for middle and lower-income families. And a tax and benefit system that supports families with children, not one which is increasingly skewed against them, as we see under this government."

GDP slips faster than forecast



Pressure on government to halt elements of its austerity programme has been growing after figures showed the economy shrank at a faster rate than previously thought in the last three months of 2010. Gross domestic product slipped by 0.6% in the period, according to fresh data from the Office for National Statistics.

The ONS initial estimate, which many economists believed would prove too pessimistic, suggested the economy had contracted by 0.5%. The ONS said the bad weather had accounted for just 0.5% of the fall, meaning that, even without the snow chaos, the economy would have contracted by a small amount. It also revealed that household spending in the fourth quarter fell by 0.1%.

Economists believe the poor figures are likely to persuade the Bank of England to postpone a rise in interest rates until the summer at the earliest. Pressure to raise rates has mounted following a rise in inflation to 4% – double the Bank's target.

The competing pressures on the Bank were further illustrated last week by sharp rises in oil prices, caused in large part by the Libya crisis.

Sharp movements in the price of oil have raised fears that the price of unleaded petrol could jump to as high as 140p a litre. Fuel costs are already at record levels, with unleaded selling at an average of 129p a litre.