Audit Update
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Transcript of Audit Update
Squeezed: the low earners audit
Background to the audit
• First major study of group, published March 2009
• First update with focus on employment, published August 2009
• Numbers in, and composition of, group varies across policy areas • cf. housing, skills training and long-term care
• Took wide view to uncover range of challenges
Defining low earners
• For analysis, number of ways of defining group• upper threshold of median income • lower threshold of independence from state support harder to
capture
• Detailed analysis of benefit-receipt in BHPS found 30 per cent of adults in GB within group
• Also used 30 per cent of households directly below median (i.e. income deciles 3, 4 & 5) as proxy• gross, disposable and equivalised income bases
Household composition
• 7.6 million low earner households • 4.7 million non-retired
households • 2.9 million retired households
• 13.7 million adults in low earner households• 29 per cent of total adult
population
• 4.3 million children• 32 per cent of total child
population
Household composition by income group: UK 2007/08 (000s)Benefit-
dependentLow
earnersHigh
earners
Total number of households 5,050 7,600 12,700
Non-retired households 3,100 4,700 10,950
One adult 800 700 2,050
One adult: men 500 400 1,200
One adult: women 350 300 900
Tw o adults 550 1,100 4,250
Three or more adults 200 550 1,200
One adult w ith children 600 550 300
Tw o adults w ith one child 250 450 1,150
Tw o adults w ith tw o children 300 700 1,250
Tw o adults w ith three or more children 250 300 250
Three or more adults w ith children 250 400 450
Retired households 2,000 2,850 1,800
One adult 1,000 1,550 1,000
One adult: men 250 500 300
One adult: women 800 1,100 700
Tw o or more adults 1,000 1,300 800
Total number of people 11,900 18,250 29,950
Adults 8,600 13,700 24,350
Men 3,800 6,600 12,450
Women 4,550 7,600 11,900
Children 3,300 4,300 5,850
Social class
Over 60 per cent of heads of low earner households are in social classes C1 and C2
1%
6%
23%
19%
24%28%
1%
10%
32%29%
23%
5%6%
27%
37%
21%
8%
1%
0%
10%
20%
30%
40%
A B C1 C2 D E
Distribution of social class of heads of household by income: GB Sep/Oct 2008
Benefit-dependent Low earners High earners
Over 80 per cent are in classes C1, C2 and D
Financial health
• Low earner households spend nearly all of their disposable income each week
• Income is frequently variable, due to the nature of work patterns
• Have low levels of savings and are less likely than high earners to have life, income protection and critical illness insurance
• Debt levels have increased rapidly in recent years, with a growing number expressing difficulty making repayments
• Faced higher levels of personal inflation in 2008 than high earners
• Lack access to financial advice
Financial health
78 per cent of low earners were in poor financial health during economically benign period 12 per cent were in an
acute position
Financial health of low earnersGreat Britain 2004
Healthy, 22%
Has pension and selection of other major financial products
Has sensible combination of products
Has more than minimal savings for age
Mild, 39%
Has one or more of the following symptoms:
Potentially inefficient combination of products;
No pension;
Minimal savings for age
Chronic, 26%
As acute, but with £70k equity
No acute condition, but one or more of the following symptoms:
High debt gearing (debt excluding mortgage of 70-100% income);
High mortgage gearing (payment of 50-70% income);
Usually runs out of money before month end;
Virtually no savings for age
Acute, 12%
One or more of: Highly stressed on debt (debt excluding mortgage >100% income); Highly stressed on mortgage payments (>70% income); Drop in income (job loss, death or divorce); Always runs out of money before end of month
Financial health
Low earners spend nearly all of their disposable income each week Low earners allocate a higher proportion of
their weekly expenditure than high earners to essential items such as housing, food and fuel
Benefit- dependent
Low earners
Highearners
Benefit- dependent
Low earners
Highearners
Housing (net), fuel & pow er 20.7% 15.1% 9.0% 20.1% 13.9% 7.6%
Food & non-alcoholic drinks 15.4% 12.8% 9.2% 14.9% 11.7% 7.7%
Recreation & culture 11.2% 12.6% 12.6% 10.8% 11.6% 10.6%
Transport 8.5% 12.0% 14.4% 8.2% 11.0% 12.1%
Miscellaneous goods & services 7.4% 7.3% 7.8% 7.2% 6.6% 6.6%
Restaurants & hotels 5.9% 7.0% 8.7% 5.7% 6.4% 7.3%
Household goods & services 7.4% 6.9% 6.6% 7.1% 6.3% 5.5%
Clothing & footw ear 4.2% 4.6% 4.9% 4.1% 4.2% 4.1%
Communication 3.5% 3.0% 2.4% 3.4% 2.8% 2.0%
Alcoholic drinks, tobacco & narcotics 3.4% 2.8% 2.2% 3.3% 2.6% 1.9%
Health 1.2% 1.4% 1.2% 1.2% 1.3% 1.0%
Education 1.1% 0.7% 1.8% 1.1% 0.6% 1.5%
All expenditure groups 89.8% 86.2% 80.9% 87.0% 78.9% 67.7%
Other expenditure items 10.2% 13.8% 19.1% 9.9% 12.6% 16.0%
Total expenditure 100.0% 100.0% 100.0% 96.9% 91.6% 83.7%
Weekly household expenditure by income group: UK 2007As proportion of total expenditure As proportion of disposable household income
Financial health
35 per cent of low earners have no savings and a further 21 per cent have savings of less than £1,500
24 per cent of low earner households spent more than one quarter of their
monthly income on debt repayments in 2008; up from 12 per cent in 2005
Sep2005
Sep2006
Sep2007
Sep/Oct 2008
Secured debtBase 313 275 280 3860 75% 74% 83% 71%<0.25 19% 16% 10% 13%>0.25 5% 10% 7% 16%
Unsecured debtBase 313 273 248 3440 65% 55% 55% 49%<0.25 33% 41% 40% 44%>0.25 2% 4% 5% 6%
Total debtBase 313 264 241 3270 51% 42% 49% 37%<0.25 37% 42% 37% 40%>0.25 12% 15% 13% 24%
Distribution of ratio of last monthly debt payment to monthly income among low earner households: GB 2005-08
34.9%
21.1%
6.0%
13.2%
3.4%
6.1%
2.1%
13.3%
15.6%
19.9%
8.0%
16.3%
4.2%
8.4%
3.9%
23.7%
0% 10% 20% 30% 40%
No savings
Less than £1,500
£1,500 but less than £3,000
£3,000 but less than £8,000
£8,000 but less than £10,000
£10,000 but less than …
£16,000 but less than …
£20,000 or more
Savings by income group: UK 2007-08
Low earners
High earners
Financial health
Low earners have experienced much higher levels of price increases than high earners
Often on threshold of state support from sources such as fuel poverty social tariffs
and Warm Front grants
-0.4-0.2
+0.0+0.2+0.4+0.6+0.8+1.0+1.2+1.4+1.6+1.8+2.0
1988 1992 1996 2000 2004 2008
Difference between low earner-weighted and high earner- weighted price indices:
UK Jan 1998 - Jun 2009
Low earner-weighted CPI lower than high earner-weighted CPI
Low earner-weighted CPI higher than high earner-weighted CPI
Financial health: Chris
• 49 year-old male, works full time• Separated from wife but can’t afford to move out• Lost eligibility for tax credits • Rent up 5 per cent; salary up 0.5 per cent• Taken a second job, looking for a third• Can’t buy new shoes for children• No money for self – no socialising, no eye test• Avoids credit• Saves with a credit union but unexpected costs – like
new washing machine or bank charges – eat into this• Doesn’t want to think about the future
Jobs and skills
• Low earner households more vulnerable than others to effects of job loss/reduced income• lack of safety net• less likely to receive substantial redundancy payment
• More likely to face uncertainty because of concentration in SMEs and self-employment• 16 per cent are self-employed; 10 per cent of high earners
• Also concentrated in service industries which face sustained period of reduced demand
• Less able than high earners to progress in labour market or return to the workforce following redundancy
Jobs and skills
Workers in larger organisations and with higher starting levels of skills are more likely to receive training from employers
Government schemes are largely focused on those with lowest levels of skills
54%
80%
92%
94%
94%
53%
34%
19%
7%
0% 20% 40% 60% 80% 100%
2-4
5-24
25-99
100-199
200-499
Managers
Admin.
Elementary occs
Machine operatives
Skills training provided by employers: UK 2007
Training provided by number of employess in organisation
Types of employees trained on-the-job in last 12 months (among firms offering it)
Highest level of educational qualification by income group: GB Sep/Oct 2008Benefit-
dependentLow
earnersHigh
earnersAll
No formal qualif ication 45% 25% 8% 23%GCSE/O-level 18% 25% 22% 22%A-level 12% 15% 20% 16%Bachelor 8% 13% 24% 16%Masters/PhD 2% 3% 9% 5%Vocation 9% 11% 9% 9%Other 7% 8% 8% 8%Still studying 0% 1% 0% 0%
50 per cent of low earners have no qualification above GCSE/O-level. They are more likely to have GCSE’s and A-Levels than other members of society
Jobs and skills: Anne
• 56 year-old woman, renting from housing association• Husband left last year, significantly reducing her income• Lost job as pt pharmacy assistant when shop closed• Visits jobcentre twice a week, searches websites and
asks around in shops/businesses• Available jobs require three years’ relevant experience or
NVQ Level 2, 3 or 4 – only has NVQ 1• Became unwell – depression and anxiety• Sold car – limiting her job prospects• Must choose between heating and eating• Lives hand-to-mouth and feels worthless
Housing
• Low earners have found themselves priced out of the housing market in the last decade
• Falls in 2009 have not been big enough to reverse this trend, particularly with credit restricted
• Buyers from recent years are likely to have stretched themselves• more likely than others to be in negative equity
• Access to social housing has also been restricted• many therefore have little option but to rent privately• fewer rights and possibility of eviction if landlord fails to keep up
repayments
Housing
Overall proportion of low earners owning their own home has changed little, but fewer are entering the market
Affordability has reduced more significantly for low earners than for high earners in the period since 1977
58.6%
33.6%
25.5%
55.9%
37.3%
19.2%
0% 10% 20% 30% 40% 50% 60% 70%
Owners
Owned outright
Buying with a mortgage
Change in home ownership among low earner households:UK 2002-03 & 2007-08
2002-032007-08
High earners
Low earnersBenefit-
dependent
0
50
100
150
200
250
1977 1981 1985 1989 1993 1997 2001 2005
Indices of gross income to first time buyer house price by income group:
UK 1977 - 2008 (1977 = 100)
Housing
In 2008, 3.6 per cent of low earners reported being in negative equity, more than among any other income group
Benefit-dependent
Low earners
High earners
All
0%-25% 47.4% 30.6% 29.3% 31.0%25%-50% 26.3% 32.4% 32.9% 32.3%50%-75% 13.2% 19.8% 23.6% 21.9%75%-100% 10.5% 13.5% 11.8% 12.1%>100% (negative equity) 2.6% 3.6% 2.4% 2.7%
Distribution of loan to value among those with mortgages by income group: GB Sep/Oct 2008
44.7%
25.5%
25.5%
4.3%
0.0%
30.6%
32.4%
19.8%
13.5%
3.6%
0% 10% 20% 30% 40% 50%
0%-25%
25%-50%
50%-75%
75%-100%
>100% (negative equity)
Distribution of LTV among low earner mortgagors: GB 2007 & 2008
2007
2008
The proportion of low earners with LTVs in excess of 75 per cent increased significantly between 2007 and 2008
Housing: Julie
• Female in her 40s, works full time as an agency carer• Lives in privately rented flat with partner• On council waiting list for five years• Doesn’t like where she lives, but can’t afford to move• Not much leftover after rent and bills – no prospect of
buying a property• Before meeting her partner she lived with her daughter
because couldn’t afford to live alone• Grand-daughter gave up her room, so she felt like she
was intruding• Worried that landlord might sell – they’re at his mercy
Public policy
• Overall, low earners have become poorer relative to other groups since 1977
• However, have benefitted from a number of policies since 1997:• tax credits• national minimum wage• investment in public services
• Helped shift tax-benefit balance into positive• Number of recession policies will help group• But remain largely overlooked – as evidenced by 10p tax row• Unless the group is recognised, likely to be among biggest
losers in period of fiscal contraction
Public policy
Between 1977 and 1997, low earners became poorer relative to high earners and benefit-dependent households
Since 1997, introduction of tax credits, extension of cash benefits and real-terms increases in public
expenditure have helped low earners close the gap with high
earners slightly
Original income 15,200
+ plus cash benefits 6,800
= Gross income 22,000
- less direct taxes & employees' NIC 3,400
= Disposable income 18,600
- less indirect taxes 3,900
= Post-tax income 14,700
+ plus benefits in kind 6,600
= Final income 21,400
£ per year
Average income, tax and benefit among low earner households: UK 2007/08
£0.63
£0.49
£0.55
£0.00
£0.10
£0.20
£0.30
£0.40
£0.50
£0.60
£0.70
1977 1981 1985 1989 1993 1996/97
2000/01
2004/05
Average low earner final household income per £1 of average high earner household final income: UK
£1.54
£1.44 £1.49
£1.00
£1.10
£1.20
£1.30
£1.40
£1.50
£1.60
£1.70
1977 1981 1985 1989 1993 1996/97
2000/01
2004/05
Average low earner final household income per £1 of average benefit-dependent income: UK
Public policy
Increases in public spending and introduction of tax credits has driven improvement in low earners’ tax-benefits balance
In 1977, non-retired low earners received £0.76 in benefits for every £1 tax they paid
In 1996/97, they received £0.97
In 2007/08, they received £1.06
£0.76
£0.97
£1.06
£0.60
£0.70
£0.80
£0.90
£1.00
£1.10
£1.20
1977 1979 1981 1983 1985 1987 1989 1991 1993 1994/95
1996/97
1998/99
2000/01
2002/03
2004/05
2006/07
Average value of benefits received and public services consumed for every £1 tax paid by non-retired low earner households
In June 2009, 14 per cent of C2
group said they would vote for
UKIP, compared with 6 per cent
among the population as a
whole
In May 2009, 17 per cent of low earners said they would not
vote in a general election, compared
with 14 per cent among the overall
population
Low earners and voting
Since 1997, support for the Government among low earners (as represented by C1C2 group) has differed from the population as a whole on both the up-side and down-side
31 33 33 33 33 35 39 42
44 42 42 4336 35 27 23
17 17 19 1823 21
18 18
8 8 6 6 8 815 17
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1997 election
All
1997 election C1C2
2001 election
All
2001 election C1C2
2005 election
All
2005 election C1C2
2009 June All
2009 June C1C2
Voting intention among those saying they are certain to vote: All respondents compared with C1C2 only
Other
Lib Dem
Labour
Conservative
Conclusions
• Low earners have been squeezed, exposed and overlooked during economically benign times
• The recession is highlighting their exposure and focusing attention on the group• more at risk than benefit-dependent households of a drop in income due
to loss of work and more likely to have credit commitments• less likely than high earners to have a safety net of savings and
insurance and less likely to be in a position to return rapidly to employment following redundancy
• In longer term, position on threshold of state support means that fiscal contraction represents a particular threat to them• risks squeezing them still tighter by reducing the benefits such as tax
credits that some of them may be entitled to, increasing the taxes that some of them may pay and reducing the public services that they can consume.