The Sunset of the Middle Class
In a time of generational reckoning, homeownership, education and inheritance are up for grabs. It's time to take The Sniff Test.
In the Firing Line
Labour activists are getting back to business. Angela Raynor is by several accounts behind leaks favouring tax rises over spending cuts. The left of the party sees an opportunity to regain the agenda, on the back of public opposition to the Winter Fuel Allowance cuts. The public should be careful what it wishes for.
This is the third and final part in a series on the Fourth Turning. This began with the financial crisis of 2008 and is reaching its own crisis point. What comes afterwards is in theory better, but unimaginable to those living through it. There is no guarantee, however.
The decades after World War II comprise the four generations of the current cycle. They began with a socialist government determined to use the power of the state to help working men and women achieve middle class status. This was so successful that the middle class is now in the firing line as the government needs money. An era defined by the rise of Middle England risks ending with its demise.
The Individual and the State
The concept of the middle class crystallised with the Reform Act of 1832, when propertied men in the commercial and professional classes gained the vote. By the end of the century they were the swing voters. After World War II, both major parties shaped their agendas around middle class aspirations.
When I was growing up, the social rules and sexual repression of the middle classes were staples of popular sitcoms. Yet being middle class turns on three serious principles. These are home ownership, quality education and inherited wealth. What each of those means will undergo profound change.
Owning your own home is a sign of security, independence and social standing. The fascination with house prices is a national pastime and the fear of them falling the concern of politicians. Homes are both somewhere to live and a means of saving. Only one of those can be the priority for government policy.
Home ownership expanded in the Thatcher years with the right to buy social housing. This pulled lower-income groups into the aspirational classes. By 2000, two-thirds of the population was middle class, measured by job description by the Office of National Statistics and self-identification in the British Social Attitudes Survey.
Today two-thirds of households own their own home, down from a peak of 71% in 2003. For 22 years, the dream of home ownership has started to slip away. The average price of a home has risen 67% in that time, driving a wedge between the housing haves and have nots.
Based on figures from the Office of National Statistics, up to 18 million long-term immigrants arrived in the UK since 2003. That’s about 7 million more than people who left. Average residential rent doubled in that time. Not only has the bottom rung of the housing ladder risen out of reach, the cost of not grasping it has soared.
Britain needs migrants. We run a large trade deficit and must sell services to balance the books. Britain needs tourists, international students, and foreign workers to sell those services into their home countries. All of them need somewhere to stay.
Affordable housing is important for social mobility. People need to go to where the work is, but don’t if there is nowhere to live. The solution is more houses. Yet regulations, housebuilders and homeowners prevent this happening.
At some point, the unspoken policy of government shifted from helping people into homes to protecting prices. That’s what happens when a minority becomes a majority. It protects its privileges. Now a new minority must enforce change. Labour dominates parliament with one-third of the popular vote.
Fairer Finance calculates that half of us will need to draw down housing wealth to provide retirement income. Only a quarter of adults own their home debt free. But to a progressive government anxious for money, housing wealth is a trapped resource. It takes too long for it filter back into the economy and most of it is passed on through inheritance.
If you believe in the property rights of the individual, then the current system works well. Hard work is rewarded with accumulated wealth that can be bequeathed. This gives a purpose to life in supporting and perpetuating the family.
If you believe the state is best placed to determine the national good, then property rights have always been a problem. You can’t abolish them, but you can tax the benefits away. From April 2027, unused pension funds will be subject to inheritance tax. What remains is to reduce the tax-free threshold of £500,000 per person.
The Purpose of Education
If owning a home is a sign of social status, education is the means of achieving it. The 1944 Education Act expanded grammar schools and universities to increase individual opportunity. Working parents without a university degree, scrimped and saved to ensure that their children had a brighter future. This meant escaping the manual work that parents endured. Today, half of state school students have started higher education by age 25.
Unwittingly, the families that climbed the ladder into the middle class have pulled it up behind them. They support well-meaning policies that work against social mobility. The price of homes is protected by planning and environmental policies. Meanwhile, an abundance of graduates entering the workforce caps social mobility for those who do not have a degree.
The post war blueprint for economic growth is copied and refined abroad. This creates competition and a requirement to adapt at home. Education is the pathway to advancement worldwide and the jobs that white collar workers do are mobile. By some measures there are 14 million Indians employed in outsourcing services, which provide a clear path to their middle class. These jobs are a direct transfer of white collar work from the West.
Technology is changing education and making it more accessible. While course work has expanded, exams favour those with strong memories. These convey no advantage in the workplace when knowledge is a prompt away. All the data in The Sniff Test starts with a series of questions to ChatGPT.
This is how the curriculum will be rebuilt. Rather than providing answers, students will ask questions. I recently created computer code that downloads and filters data from a government website, with only a series of questions and prompts. This is possible on a mobile phone and over 90% of children have one by age 12.
I envisage a teaching application called Socrates that asks questions back. This is how I remember my tutorials at Oxford working. It is also how the best sales people sell, by getting buyers to answer their own questions and convince themselves about a solution. Knowledge is transferred through the concepts we form in our heads, not by the words of others.
Robot teachers won’t improve the social aspects of struggling schools, until they police them. In the meantime, apps make it much easier for pupils to shine without standing out among hostile peers. The competitive advantage that flows to middle class students from location and parental support will diminish.
The State Wants Its Money Back
Retirement is a 20th century convention. It was formalised by the wartime Beveridge Report and enshrined in the 1946 National Insurance Act. What was initially relief for those too frail to continue work became an entitlement. Some of the most protracted strikes and continuing grievances revolve around retirement age and pension rights.
Your right to a state pension depends on national insurance contributions. If you paid for less than ten years you get nothing and you need 35 years of contributions to receive the highest amount. Relief for the elderly poor has become a reward for those who stay in employment. Being middle class is about having steady employment.
Along with owning a house and the freedom for your children to study, financial security means saving for retirement. It also means passing on an inheritance when those savings exceed personal needs. The UK Data Service says that three-quarters of people born in the 1970s have or expect to receive an inheritance. £5.5 trillion is projected to pass between generations in the coming decades, much of it tied up in property.
For an individual, housing is an investment that can be consumed in later life and the balance bequeathed to family. For the state, housing is trapped money that could fund spending or investment. Many families are relying on transferred wealth to fund their own home. For some politicians that is unearned income and a privilege that should not exist.
How this plays out will determine the social upheaval that comes between every Fourth and First Turning. Under the theory, crisis is followed by renewal and the First Turning is prosperous. But a theory is not a rule and change for the better is not inevitable. The state enabled middle class wealth through education, housing policy and retirement savings. It may decide that the only way to fund its debts, is to take the money back.