Nearly two-in-five high-income, working-age families have strengthened their household budgets since the crisis began, by reducing their spending and avoiding a hit to their incomes, while just one-in-eight low-income families have been in this position, according to a new Resolution Foundation report published today .
Much of the debate so far has rightly focused on how individual workers have been affected by the crisis. However, the report, Return to spender, takes a wider view, analysing the impact of the crisis on families’ incomes and spending patterns.
The report notes that while one-in-three low-paid workers have been furloughed, lost their jobs or experienced falling hours, compared to 15 per cent of high earners, the impact on family incomes has been more evenly felt.
Lower-income families are only slightly more likely than higher-income families to have seen their overall income fall since the crisis began, with one-in-three families overall having experienced this.
The more even distribution of income falls across families partly reflects the fact that lower-income families have fewer working adults, and that many low earners live in households on middle or even higher incomes.
It also reflects the critical job done by Government policy in helping to cushion the incomes of those affected by the crisis. Low- and middle-income families suffering income falls have had those cushioned by Universal Credit, while even those not seeing income hits will have benefited from the £20 a week increase in generosity.
However, the report uncovers a different – and stark – divide in terms of the impact of the crisis on families’ budgets.
Nearly three-in-five of the richest fifth of families have reduced their spending since the crisis began, including one-in-ten who have cut their spending by more a quarter. In contrast, less than a third of the poorest fifth of households have cut their spending. In fact, they are almost as likely to have increased their spending during the crisis as reduced it.
Taking these income and spending trends together, the report notes almost two-in-five (38 per cent) high-income households have seen their spending reduced and their incomes stay the same or even grow, thereby strengthening their overall household budgets. Only one-in-eight (12 per cent) low-income households have seen their household budgets improve in this way.
The Foundation says that the big divide in how families’ household budgets are faring during the crisis is also reflected in how they feel about their finances.
Poorer households are much more likely to say that their ability to manage financially has worsened than improved (37 per cent compared to 10 per cent), whereas despite a deep recession, respondents in the top quintile are just as likely to say that their position has improved than worsened (23 per cent compared to 22 per cent).
The Foundation adds that the Government should recognise this financial resilience challenge, which millions of low- and middle-income families face, as it prepares its ‘recovery Budget’ in July.
Laura Gardiner, Research Director at the Resolution Foundation, said:
“While low-paid workers have been far more affected by the economic crisis than high earners, this has translated into a more even squeeze on families of different income levels. This reflects the fact that low earners often live in middle- or higher-income families, while our welfare safety net has a crucial role in cushioning income falls for lower-income households.
“But the crisis is still posing much bigger challenges for lower-income families. Many high-income families have reduced their spending in recent months. Those on lower incomes, however, have found it far harder to reduce spending which, when combined with income falls, means many are seeing their ability to manage financially deteriorate.
“As policy makers prepare their plan to support Britain’s recovery, they must prioritise strengthening the family finances of low-to-middle income households.”
