Low earning households hit hardest by the recession

Today the Resolution Foundation publishes two reports exploring the financial health of the UK’s “low earning” households.

The latest Low Earners Audit takes an overview of how the 7.2 million households living below median income but broadly independent of state support are faring in the recession, and our second report – Behind the Balance Sheet – digs deeper and reveals how this group are the real “squeezed middle”, living right on the very edge of their means and surviving on an average earned household income of £15,800.

They lack the safety nets and savings of better-off households, and yet are being hit harder than workless households by the double whammy of unemployment and underemployment in the current downturn.

While for some, reduced working hours might be a welcome shift in gear, for others it represents a real threat. The number of low income households who say they are struggling to keep up with bills because of a drop in hours has doubled since 2008.

The TUC shows that involuntary part-time and temporary work is on the increase during the recession, and our analysis shows that four million low earners reported a drop in income last year.

Put this alongside a higher rate of inflation for low earners (thanks to increases in food and fuel costs), together with £1.9 billion of unsecured debt across 3.6 million of the most economically fragile households, and it’s little wonder that the optimism of low earners about their personal economic futures has dropped 20 percentage points since 2001.

We do not think that the solution to such poor financial health rests in more money-education alone; our research shows that low income households are often better budgeters than other income groups.

We argue instead that the focus should be on providing more responsive support via the tax credit and benefits systems. We want to see the development of banking services (particularly savings products and affordable credit) that deliver for low-earner households without exploiting them.

More fundamentally, our reports point to the fact that the financial health of low income households is determined by a whole host of “hidden” assets and liabilities, such as skill levels, housing tenure and caring responsibilities.

Growing inequalities in terms of asset-ownership, and the stratification of the labour market risk leaving low earners stuck, unable to advance at work or build up their financial resilience.

The underlying problems faced by this real middle – and highlighted by the recession – need to be at the heart of any future government’s priorities.