New research shows people are struggling to cope with the financial downturn and finds Britons are now among the most economically vulnerable consumers in Europe.
The gloomy outlook is published today in the first Which? Quarterly Consumer Report which finds that British consumers say they spend on average more than three hours a week worrying about money, that’s seven solid days a year.
In the midst of the tightest financial squeeze in Britainin nearly 100 years1, the report shows debt levels during the recession at their highest since the 1980s and British households owing £1.5 trillion2. Women and young people were found to have the highest levels of debt for their income.
The first Which? Quarterly Consumer Report shows falling incomes and declining standards of living are having a negative impact on life satisfaction, with just 53% of people in Britain satisfied with life overall. Three quarters of the British public describe theUKeconomy as ‘poor’ and half of the population believe it will only get worse over the coming 12 months. The report also reveals consumer mistrust in the banking system and 56% say they do not trust the Government to act in their interest.
The Which? Quarterly Consumer Report also finds:
- Britain on the edge: Half of British consumers (48%) said they would struggle to cope with an unexpected cost. 35% are finding it difficult to cope on their current incomes, in the last month 18% of people used an authorised overdraft and 3% (approximately 765,000 households) took out a pay day loan.
- Savings timebomb: Most Britons are struggling to save 7p from every pound of income, a savings rate predicted to drop to just 5p by 2016. Compared to European3 countries, onlyLatvia andLithuania save less of their income than theUK.
- Household budget pinch: 43% of people expect to cut back on their spending on food in the coming months and more than half say they are cutting back on big-ticket household items such as holidays (57%) or socialising (56%). People are most likely to be worried about fuel (81%) and energy prices (79%).
- Bearing the brunt: Young people (18-29 year olds) have borne the brunt of the impact on living standards with a fall in purchasing power of twice the national average (-1.8% compared to -0.9%) in the past 12 months, now at the lowest level since 2003. They also have more debt than any other age group – for every pound they earn they owe 47p, compared to the national average of 21p. One in ten young people admitted to defaulting on a bill and one in five relied on loans from friends and family to get by in the past month. 45% say they always or often run out of money each month (compared with 38% of all consumers). Which? and other consumer groups is calling for compulsory personal finance education in schools and colleges to equip young people to manage their money.
- Squeezed bottom: People earning the second lowest wage bracket (£12,376 – £21,424 per year) have seen the biggest deterioration in quality of life, from 69% reporting that they are “living comfortably” in 2003 to 48% in 2010, pushing them down to the level of those in the very bottom income group. Those on the lowest incomes (earning £12,376 or below per year) have the highest debt ratio meaning they owe 37p for every £1 they earn compared to 10p for the highest income bracket. These two groups are together forming a new, larger group of working poor – the squeezed bottom.
- New essentials: Only 7% of people are willing to spend any leftover money they have. This growing reluctance to spend has seen consumers reassess what they think are “essentials”. Our research shows consumers are less willing to cut back on broadband, mobiles and TV subscriptions.
Which? executive director, Richard Lloyd, said:
“Consumers in Britain are going through the tightest squeeze in their living standards since the 1920s. Many consumers are clinging to the edge of a financial cliff with savings at rock bottom and personal debt levels sky high. Shocking numbers of people say they are forced to take on new forms of debt just to make ends meet, and many more would not cope with unexpected shocks to their incomes or household bills.
“Which? wants to see confident consumers and strong businesses driving economic recovery, but the consumer has too often been an afterthought in the Government’s growth agenda. With this new report, we show just how well those with power, both in government and business, are doing at putting consumer wellbeing first.”
The Which? Quarterly Consumer Report is the first in a new series monitoring how people feel about the current financial situation. It includes a new Spending Power Index which tracks month on month changes in consumer purchasing power. This quarter the Index concludes an ongoing decline in standard of living over the last 12 months (-0.9%).
Notes for editors:
1 Source: Bank ofEngland. Mervyn King speech, Jan 2011.
2 Source: Bank ofEngland total lending to individuals.
3 Compared to European countries who collect comparable data.
1. Downloaded the Quarterly Consumer Report July 2012. This is the first Report of its kind that Which? will produce every quarter. The Report consists of:
- Populus poll: Populus, on behalf of Which?, interviewed 2006 GB adults online between 8th and 10th June 2012. Data were weighted to be demographically representative of all GB adults. Populus is a member of the British Polling Council and abides by its rules.
- The Which? Spending Power Index: Which? and the Centre for Economics and Business Research (CEBR) examined the macroeconomic trends in the British economy and created the Which? Spending Power Index measuring monthly purchasing power for UK households. The Which? Spending Power Index is constructed as a measure of consumer purchasing power, calculated by deflating modelled nominal household incomes by household-specific price indices. More information at www.cebr.com.
- Social media analysis: Between 20th May and 13th June 2012, Which? analysed 1,007 online comments and conversations on the topic of Energy. Between 27th June and 12th July 2012, Which? analysed 5,000 Twitter comments and conversations on the topic of recent banking scandals. Results are set out in the Report.