recession will hurt lower-income families the most, according to a report released yesterday by the
Resolution Foundation. These, of course, are precisely the voters who chose Leave in the greatest numbers.
These families would also be hit the hardest by sharp rises in food prices that would follow a no-deal Brexit,
according to a prominent academic writing in The Lancet.
Last week, the Bank of England became the latest institution to warn that the chances of a recession have
risen, putting the probability at one in three – and that’s assuming we leave the EU with a deal in October.
We will have to wait until September to find out what the bank thinks the impact would be from a chaotic
departure. But it did say that in that case GDP growth would be even slower than the feeble expansion it
predicts for this and next year.
Moody’s, a credit rating agency which scores how likely a country is to repay its debt, has been quicker off
the mark, saying in July that Britain would indeed fall into recession if it crashed out of the EU. The
government’s spending watchdog, the Office for Budget Responsibility, has also said as much and warned
the economy may already be entering “a full-blown recession”.
The Resolution Foundation, for its part, has calculated that the risk of recession is at its highest since 2007,
while the National Institute for Social and Economic Research sees a 30 per cent chance GDP will decline
over the course of 2020 and suggests that this probability will be higher if Britain leaves without a deal.
In its report, the Resolution Foundation lays out four main reasons why the next economic slump would
heap pain mostly on poorer households. First, research into past recessions has shown that unemployment
always rises most for lower-income workers.
Second, to cope with the downturn that followed the financial crisis, low- and middle-income families drew
down on their limited savings and now nearly 60 per cent of this group have nothing put aside, up from just
over 40 per cent shortly before the crisis.
Third, the social security safety net cushioned the impact of the 2008-09 recession on lower-income
households. For example, for the poorest 10th of the population, the fall in income from employment was
more than offset by a boost from the tax and benefit system.
Research by University of Warwick published last year found that voting
Leave was associated with receiving benefits and low educational
attainment, among other characteristics
“We can’t rely on the application of the same level of government support for lower-income households in
the next downturn – particularly given the nature of the benefits squeeze that continues to be delivered as
part of the austerity package,” the foundation says. We certainly can’t rely on that in a country headed by
Boris Johnson, who has consistently supported cutbacks on welfare spending and whose most expensive
promise so far involves tax cuts that would benefit high earners.
Finally, the Resolution Foundation says poorer families have less scope to reduce spending on non-
essentials if their incomes drop. They already did this during the last economic slump and haven’t been able
to loosen the purse strings by much since then. What’s also different about today is the fact that many of the
tools used to fight the last recession, such as steep interest rate cuts and quantitative easing, have been
mostly depleted.
It is a distressing accumulation of evidence, and the cavalier Brexiteers who are championing no deal must
be aware that the lower-income households most vulnerable to consequences from a no-deal Brexit are also