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British households were plunged into the Covid pandemic with lower savings, more debt and weaker welfare support than their French and German counterparts, according to analysis revealing how inequality increased the impact of the UK crisis.
High levels of income inequality also weakened the financial resilience of poorer households as the pandemic hit. The greater exposure of British households, revealed in an analysis by the Resolution Foundation thinktank to be published in full this week, comes despite similar levels of average income with our European neighbours.
The typical working-age income level in the UK is £29,437 and £29,350 in France. However, the poorest fifth of working-age households in the UK are 20% poorer than their French counterparts, while the richest fifth are 17% richer in Britain.
The structure of Britain’s economy and income inequality is seen by some as a reason for the heavy toll the pandemic had wrought on the UK. Some public health officials continue to warn that incidences of the virus remain higher in areas with many people in low-paid work and where they cannot work from home. There have been warnings that it could become a “disease of the poor” in some areas.
High employment levels in the UK helped household finances in the run-up to the pandemic last year, with a 75% employment rate – broadly similar to that in Germany and far higher than the 66% record in France. However, the typical hourly rate paid in the UK (£11.20) was much lower than in Germany (£12.33) and France (£13.89). It was partly driven by low self-employed earnings, raising further concerns about the extent of the gig economy in Britain.
Levels of UK welfare support were found to be poor in comparison with other large European nations, underlining the importance of protecting jobs through the government’s emergency furlough scheme rolled out last year. For example, a single adult who had been out of work for two months, having previously earned two-thirds of the average wage, would see their benefit income total just 17% of their previous earnings. The same person would see a benefit replacement rate of 59% in Germany and 64% in France. The gap is closed when housing-related benefits are included, with the UK’s benefit replacement rate rising to 46%, compared with 59% in Germany and 68% in France.
Household savings before the pandemic were lower in the UK than in France and Germany. Two-thirds of low-income households in Britain have savings that amount to less than one month’s disposable income. The figure in France and Germany is 56%.
However, average housing costs are higher in Germany than in France and the UK because of high levels of private renting, particularly for the low-paid. The precarious position of some households in Britain compared with their European counterparts came despite much higher housing wealth.
Overall, the study found that the combination of lower incomes at the bottom level of British earners, comparatively low levels of private savings, and a less generous social security safety net meant that UK households were “particularly exposed to economic shocks – such as the Covid-19 crisis that countries across the world have experienced over the past 12 months.”
Dan Tomlinson, senior economist at the Resolution Foundation, said: “Typical household incomes across the UK, France and Germany are broadly similar. But their saving and spending patterns are quite different – and this means that UK households in particular have gone into the Covid-19 crisis with far less financial security than their European counterparts.”
He added: “High levels of inequality in the UK mean our low-income families are poorer, have fewer savings and are more likely to have financial debt. And although UK households have more housing wealth and are more likely to work than households in France, the level of support available if they lose their jobs is far weaker.
Source: The Guardian
Keyword: British families took bigger hit to income during Covid pandemic than Europeans | Income inequality