Third of UK households were living beyond means before Covid


A third of households in Britain were spending more than their income before the coronavirus pandemic, according to official figures that highlight the precarious financial situation millions of people were in before the cost of living crisis hit.

Just under half of these households had a financial buffer that would last for less than a year, according to the Office for National Statistics (ONS) report based on data for the two years before the pandemic.

With households facing a record increase in energy bills when the price cap rises next month, the report said increasing costs “tend to have a disproportionate impact on lower-income households and their spending”.

While some households may be able to maintain higher levels of spending by drawing on financial buffers they have accumulated, the ONS warned that “others have less to fall back on and may need to make cutbacks, or borrow, to make up the shortfall”.

Of those working-age people who lived alone, 57% spent more than their income. This was the highest percentage among household types and they were typically able to cover the shortfall for an average of three to four months.

With household budgets stretched by surging food and energy costs, the report, based on data gathered in official surveys, estimated that 2 million households – or one in 14 – were in poverty for income, spending and financial wealth before the pandemic.

A household is in income poverty when their disposable income is less than 60% of the national average for similar households. Likewise, they are in spending poverty if their expenditure is less than 60% of the average.

Financial wealth poverty is where a household, in the event of losing all their income including government benefits, cannot bring in enough money to keep them above the income poverty line for three months. Financial wealth includes cash, savings and shares but excludes property and private pensions.

Of the three measures, households were most commonly in financial wealth poverty, with this group put at 11 million. The data lays bare the financial struggles experienced by vast swathes of the UK population, said Myron Jobson, senior personal finance analyst at the website Interactive Investor.

“The financial squeeze that many experienced pre-Covid has turned into a stranglehold today amid the once-in-a-generation style rise in the cost of living,” said Jobson.

Laith Khalaf, head of investment analysis at financial firm AJ Bell, said the figures are deeply concerning.

“They show that many people in the UK don’t have enough income to cover their expenditure and lack the financial resources to deal with any emergencies,” he said.

He said that while those without reserves may be fine while the labour market is strong, “if the Ukraine crisis and the consequent rise in energy costs prompts a global recession, unemployment could rise, and many people would be cut adrift without a financial lifeboat”.

The ONS has created an online calculator that enables you to compare your financial situation with that of other households.


Administrator

0 Comments

Your email address will not be published. Required fields are marked *