Be Warned

Low-income households in Britain are more vulnerable to recession than they were before the financial crisis, the Resolution Foundation has warned. 

“When the next recession hits – as it surely will – there is every chance that it is particularly damaging for those low-to-middle income households that are already close to the edge.

According to the thinktank, a decade of weak wage growth has left the poorest UK households and middle-income families less prepared for another downturn. It also warned the gradual dismantling of the benefits system under the policy of austerity imposed over the past decade by Conservative-led governments has left people without the same degree of support.

Should Britain sink into another downturn, the Resolution Foundation warned that poor households would struggle most.

James Smith, research director at the Resolution Foundation, said: “We know from previous downturns that it is lower income households that bear the brunt of economic downturns when it comes to their living standards. The global slowdown and continued Brexit uncertainty are making recession preparedness even more urgent. In its response, the government should consider policies that limit and mitigate the effects of the recession, particularly for the most vulnerable in society.”

The thinktank found that poor families were forced to tighten their belts to a greater extent than the rich in the years that followed the 2008 crash.

While the average fall in spending between 2009 and 2014 was £20 per week, families in the lowest 25% income bracket in Britain focused on buying essentials and cut back over three times more, at £61 a week.

It also said low and middle-income families had yet to recover. Average salaries in Britain have failed to rise above the level recorded before the financial crisis after inflation is taken into account.

Pay growth is on track to complete the weakest decade since the final decade of the Napoleonic wars in the 1810s. Wages fell by £32 a week on average after inflation between 2008 and 2014.

The Resolution Foundation said that a decade of weak wage growth had left poorer households with less scope to cut down on essentials, while a higher proportion than before the last crash had no savings upon which to draw.

Despite some reductions in their debts, as many as 60% of lower income households have nothing to put aside, up by about a quarter since the financial crisis, it said.

The value of benefits relative to average earnings has declined markedly since the financial crisis, and is on course to decline further. Jobseeker’s allowance is set to reach its lowest value ever in 2019-20, at 14.5% of average weekly pay, a fall of 5 percentage points since 2009-10.