The data was produced by the ONS in response to a report from the UK’s Financial Capability Strategy ‘Resilience Task Force’, which warned that millions of people could be vulnerable to an income shock. The ONS says its figures provide ‘insight into groups that may be more likely to experience difficulties during the current economic climate’ resulting from the coronavirus pandemic.
“The UK’s financial resilience is going to be absolutely crucial as we stand up to the economic fallout of the coronavirus. Regrettably, for many people their finances are built on shaky ground.
“The most important part of any financial plan is having a cash savings buffer in place to protect against a change in your economic circumstances like being made redundant, taking a career break to care for a family member, or being unable to work due to serious illness.
“This vital new research from the ONS will help build a statistically robust picture of the UK’s household financial resilience as it sheds some light on the issue, and reveals some ugly truths.
“It shows that around 1 in 4 households with an employed or self-employed head of the house don’t have the assets to cope with even a 25% reduction in income for 3 months. And only half have adequate resources to manage a 75% fall in their income.
“Furloughed employees face an income drop of 20% - more for those that earn over £30,000 a year - and those made redundant or who can’t access the scheme could experience much sharper falls in their income.
“Given millions of households don’t have sufficient financial resilience to survive even a modest fall in income, let alone a sustained drop lasting several months, these figures must provide a stark wake-up call about the state of our household finances.
“Since the last financial crisis some positive measures have been taken to protect households that find themselves in financial difficulty, for example to limit the predatory behaviours of some payday lenders and force credit card companies to do more to reach out to customers with persistent debt. While that will help to limit some of the worst symptoms of household financial insecurity, there has been insufficient progress on addressing the root causes of poor financial resilience by ensuring that families have deeper reserves to draw upon in times of need.”