The recession deepens for the low earners
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News that the UK is still in recession, rather than clawing its way back out of it, doesn’t bode well for anyone.
It leaves Brown, the Treasury and many economic experts with egg on their faces – the expectation was an 0.2% growth in GDP for the third quarter and the outcome, a further fall of 0.4%, suggests that the country is being led by a headless chicken, rather than a wise old owl.
True, you have the academic apologists arguing that the figures are provisional and once they start drilling down they’ll find that we’ve actually turned the economic corner and are experiencing growth again.
However, the Resolution Foundation has already been drilling down and the prognosis doesn’t look too good, especially for low earners – defined as people below median income but who don’t qualify for state support.
In other words think of the shop assistants at Woolworths, which the government didn’t deem worth saving, rather than the suits in the City and Northern Rock, and you’ll get the picture.
But their predicament also has implications for others and in particular the financial institutions that have bankrolled their mortgages, so can we expect even more forbearance or special help for this group as their plight deepens as indeed it must?
According to the Resolution Foundation (its research into the financial problems of the UK’s low-earners fed into the Thoresen Review earlier this year) the recession is hitting the legions of the low paid the hardest.
The figures say it all. Since the beginning of the recession the downturn in output has been 5.3% in distribution, hotels and restaurants, and 13% in construction, compared with 4.5% in business services and finance.
And that same trend is apparent in the Q3 data where output in distribution, hotels and restaurants decreased by 1% compared with a decrease of 0.4% in Q2. By way of comparison, business services and finance decreased by 0.1% compared with 0.7% in Q2.
As a result the prospects for the UK’s 7.2 million low earners look bleak for the foreseeable future, their situation compounded, as the Resolution Foundation will be pointing out in a report due in early November, by being in a precarious position already.
For example, they have few savings that could serve as a safety net. Specifically 51% have less than £1500 set aside for a rainy day.
High LTV mortgages and negative equity are also prevalent for the 28% of low earners who have mortgages (over one in eight has a LTV of 75-100% and 3.6% are in negative equity compared with 2.4% higher earners).
Added to this cocktail of misery they have high debt commitments with 24% spending more than a quarter of their monthly income on debt in 2008 compared with 12% in 2005.
Given all this, together with the low level of job security in this sector, the outlook is none too bright for millions of people. Saving the financial sector was obviously important but many in the real economy have yet to see the dividend.
