their outgoings and are now spending a much greater share of their income on essential items such as food
and energy. That leaves little scope for further savings in the event of another downturn.
A greater proportion of families than in 2008 also have no savings to draw upon in tough times. Almost 60
per cent of low- and middle-income households have no money set aside, the study found – an increase of a
quarter since the last financial crisis. Welfare cuts since 2010 also mean many households would be less able
to cope with another recession.
The Resolution Foundation report, titled A Problem Shared?, was published after the think tank warned
that the risk of a UK recession is now at its highest level since 2007, amid faltering economic growth and
fears over the impact of a no-deal Brexit.
Last week, the Bank of England downgraded its UK growth forecast and said there was now a one in three
chance of a recession in the coming months.
The Resolution Foundation said that, historically, recessions had disproportionately affected poorer
households but that the impact of the 2008 crash was spread somewhat more equally. Across the board,
earnings fell by £32 a week between 2008 and 2014, it said – the equivalent of £1,664 a year.
James Smith, research director at the Resolution Foundation, said: “Britain is facing the highest risk of
recession risk since 2007, and we know from previous downturns that it is lower-income households that
bear the brunt of economic downturns when it comes to their living standards.
“The deep income squeeze that followed the last financial crisis may have been more equally shared than
previous recessions. But its depth and length has had a disproportionate impact on the resilience of lower-
income households, who now have less scope to reduce non-essential spending or draw down on savings to
weather a further recession than they did after the 2008 crisis.
“The global slowdown and continued Brexit uncertainty are making recession preparedness even more
urgent. In its response, the government should consider policies that limit and mitigate the effects of the
recession, particularly for the most vulnerable in society.’
In 2008, the study found, the welfare system played a key role in protecting lower-income households from
the worst effects of the recession. Major cuts to benefits since then mean this support is likely to be much
more restricted in the event of another crisis.
While the effects of the 2008 collapse were spread more equally than in the past, the fall in incomes has
particularly affected low earners. The Resolution Foundation found that low-income households had to cut
their spending by three times more than the average between 2009 and 2014.
As a result, lower-income families are spending a much bigger proportion of their incomes on daily
essentials.
The think tank said the government should tailor economic policy to help those on lower incomes to cope
with a possible recession. It warned Boris Johnson against pushing ahead with plans to cut income taxes,
saying this would overwhelmingly benefit higher earners.