It’s not just the Government that can’t balance the books
As the Government sets the stage for the year's Budget, which will outline plans to halve the public deficit over the next four years, new research from uSwitch.com reveals a spending gap in consumers' own finances. Every month, 5.4 million adults (11%) spend more than they earn, 13 million (26%) just break even and 26 million (53%) have less than £100 left in their bank account when all else has been paid.
The study into the nation's spending habits also reveals that, like the Government, consumers are turning to borrowing to plug the gap between income and outgoings. Of the 5.4 million living beyond their means, 48% use overdrafts, 34% use credit cards and 19% borrow from friends and family to make ends meet.
The new figures call into question any lessons learnt from the credit crunch that saw financial institutions collapse under the pressure of lending to low income borrowers. In 2008 the same poll by uSwitch.com warned that 4.8 million consumers spent more than they earned; the new figures point to a rise of 12%. In fact, despite reports that the economy is on the mend, 15 million consumers (31%) believe that they will be worse off this year than last.
The figures are a symptom of a greater malaise: a recent report from uSwitch.com revealed that the cost of living is rising at nearly double the rate of salaries. Despite the economy being on the mend, over 16 million workers (57%) do not expect a pay rise this year, and those who do can expect a rise of just 1.9% - a net monthly increase of just £27.
Against the backdrop of inadequate pay rises, there are no clear signs of a let up in living costs. Motorists are bracing themselves for record petrol costs after the AA reported that prices could hit £1.20 a litre within the next few weeks. The reports place further pressure on the Government not to go ahead with a proposed 3p hike in petrol duty on 1st April.
Ann Robinson, Director of Consumer Policy at uSwitch.com, comments: "The economy may be on the mend but millions of consumers are still struggling to make ends meet. People will be looking to the Chancellor to help ease the burden through his next Budget. Instead there is a danger that he will take more money out of our pockets.
"It's a catch 22 situation - the Government needs to put forward measures to reduce the public deficit but there is every possibility that these will directly impact household budgets.
"Consumers are working hard to stay afloat but it's a struggle. Wages are not keeping up with living expenses. Short-term debt solutions may be an easy way to fund spending but they can lead to severe debt issues if not managed properly. Rather than continuing to plug the hole by borrowing, consumers need to work harder to strip down their essential bills to the bare minimum. This is crunch time for UK households."