Month after month the Labour Market Statistics drive home the point that it is the UK’s 9.4 million working age low earners, not the middle class bankers, who have been worst hit by this recession. As a report we published last year showed, unemployment increases have been steepest in industries and occupations where low-skilled, low paid work is concentrated. People in typical low earner occupations are more likely than others to remain out of work for more than six months.

That said, it is true that rises in unemployment have been less steep than in either of the last two recessions, and the government can rightly take some of the credit for this. Many commentators also attribute the slower growth in unemployment this time round to businesses doing all they can to hold on to workers through short-time working schemes and more flexible contracts.

For those households with the safety net of savings and insurance, the option to reduce working hours may be a welcome change in gear. However today’s Audit shows that such underemployment can be as threatening as unemployment for low earners who are already living at the very edge of their means. We found that on average, low earning households are currently spending all of their monthly income, with no money left over for savings or dealing with unexpected costs such as a dentist’s bill.

As Behind the Balance Sheet shows, this is not thanks to poor money management – in fact, the FSA shows that those living on low incomes are slightly better budgeters than people who are better off. Instead, 41% of their monthly income is going on essentials thanks to recent rises in the cost of food and fuel. For one in five low earning households, more than a quarter of their income is being spent on debt repayment  – double the number in this situation in 2005. Over half of low earning households have less than £1,500 in the bank.

In this context, we should be worried about the well being of the 4 million low earning households who have reported a drop in income in the last year. We should focus on the 2 million low earning households who are reporting difficulties in keeping up with bills and repayments. The Audit shows that 17% of those reporting difficulties say it is because of their reduced hours, and a further 27% say it is because of a lack of cash flow. In an earlier era of easy credit, such gaps could be bridged; but over a third of low earners report that accessing credit has been harder in the last year.

Our reports make a number of practical recommendations for what action government, lenders and others can take to support low earners during the downturn. But we also echo the warning sounded by the recent National Equality Panel, who argued that the way in which anticipated spending cuts are made will probably be the most important influence on how existing inequalities evolve.

Those advocating such spending cuts must ensure they have a full understanding of what financial hardship is really like for the millions of people on low incomes, whose already precarious position has been heightened by the recession. We hope that our reports provide this vital knowledge.

Today the Resolution Foundation publishes its report exploring the impact of the recession on low earners – the ‘squeezed middle’ with below median incomes who remain broadly independent of state support. Our analysis shows that if low earners do lose their jobs, they will find it harder to re-enter the labour market due to their low level skills. Whereas nearly nine out of ten managers and senior officials find work again within 26 weeks, only three-quarters of people in elementary occupations move off the claimant count. Those who do hold on to their jobs are finding the recession is limiting their already slim chances of accessing training, with evidence that employers are cutting back on training budgets during the downturn.

This is a similar story to the last three recessions, despite the unprecedented origins of the current circumstances. What is different this time round is that low earners were already living on the edge. With average earnings growth at a historically low 1.9% in 2009, wages are not keeping up with recent rises in the cost of living, in particular food and fuel costs. In an era of easy credit, low earners could bridge these gaps by supplementing monthly income with the use of credit. But since the meltdown in financial services in 2007, the tidal wave of credit has reduced to a trickle. Many of the sources of credit that low earners depended on evaporated. Nearly four million low earners are spending a quarter of their monthly income repaying debts, and one in eight are juggling high loan-to-value mortgages.

Given low earners were already living on the edge in the good times, the recession brings with it the very real risk that this group will be pushed from coping to crisis, with all the costs that brings to individuals and households, as well as to society and the economy at large. Protecting those who are most exposed to the lagging indicators of unemployment, repossessions and insolvencies may be difficult, but it must be the priority.

So what can be done? Our report makes a series of focused policy recommendations across the areas of jobs, housing and money. For example we argue that it should be made easier for people to combine real jobs with useful training, through allowing training to count in the eligibility criteria for working tax credits. A greater focus is needed on smoothing transitions as well, to ensure that any change in circumstances for low earners does not trigger crisis. This will require action by government – for example, speeding up benefits processing when someone loses their job – but also by lenders. Ensuring that current forbearance agreements between government and mainstream lenders also cover the sub-prime and buy-to-let sectors is an urgent priority.

Our report focuses on immediate steps that can be taken to protect low earners during the recession. However our analysis shows that many of the effects low earners are feeling now are not simply the product of today’s economic downturn. They are also the result of much longer-term trends towards a stratification of the labour market and a growing gap between those people with assets such as houses and pensions, and those who lack them. As important as protecting low earners’ fragile economic independence now is ensuring that today’s decisions do not reinforce existing patterns of polarisation that could be traced back long before the recession took hold.