Queen’s Speech

Baroness Drake Excerpts

Thursday 9th January 2020 Lords Chamber

[Baroness Drake (Lab)]

My Lords, what an act to follow.

The Queen’s Speech embraces policies directed at supporting working families, but I want to raise a growing systemic problem within our economy which the gracious Speech does not fully capture: the decline in household financial resilience—by which I mean the ability to cope financially when faced with a sudden fall in income or unavoidable rise in expenditure, and to reflect on a route to address it.

I recently chaired a steering group study into household financial resilience, under the governance of the Money and Pensions Service. Its membership ranged from the finance industry to Toynbee Hall, and was ably supported by Alan Woods, a retired senior civil servant from the DWP. The study examined findings from a wide range of respected sources through the lens of financial resilience, demonstrating the widespread nature of financial shocks and income volatility and indicating that low financial resilience is a substantial and widespread problem.

Growing evidence reveals that a single adverse event can push a household over the edge. Low financial resilience is not reserved to those on low incomes; it has travelled up the income scale. Each year some 4 million to 6 million working age people suffer a life event which can cause an income shock by reason of illness, job loss, relationship breakdown, death of a partner, or caring responsibilities. A further sizeable group experience other life events which disrupt household finances. Over 70% of those in regular work face significant volatility in monthly earnings. Some households are well placed to weather the storm, but many lack the resilience to do so.

A range of factors can increase financial resilience—such as access to employment benefits, state benefits, private insurance, savings, affordable credit, help from family and fewer pre-existing debts—but the evidence reveals that all those factors are weakening, shifting greater responsibility for resilience on to the individual, which many are ill-prepared to meet. The labour market is changing. Self-employment has risen to around 5 million, 60% of private sector employees work for SMEs, nearly 9 million in micro-businesses, and a growing number of workers lack standard employment protections. Fewer work for large businesses, which traditionally offered benefits that mitigated income shocks. Yes, more people have felt the benefits of employment, but there is a long-term decline in employer provision of occupational benefits, in both coverage and value, such as sick pay, redundancy pay and death benefits. Only 28% of employers provide more than the statutory sick pay of £94.25 a week.

Work is increasingly less secure and earnings less predictable. Means-tested benefits have fallen in real terms, help with housing and mortgage costs is restricted, 11.5 million adults have less than £100 in savings, and the FCA found that only 3% of adults had income protection and only 4% had mortgage protection insurance.

Owner occupation can boost resilience, but it has declined markedly among working age groups over the past 15 years. Low financial resilience matters because it can lead to problem debt, poor health, children’s loss of well-being and housing problems, and adverse effects on employers, utility providers, financial institutions and the economy.

I am not arguing specific policies but highlighting the evidence which demonstrates that falls in household financial resilience have been an unintended or unrecognised consequence of both socioeconomic and public policy changes. Addressing the problem requires a sound analytical basis, but current measuring of household resilience is insufficient to authoritatively inform policy. There is a compelling case for the Office for National Statistics to introduce a financial resilience index, which would: map the level of resilience in households and track changes over time, highlight segments where action is most needed, improve understanding of the underlying causes and drivers of low resilience, and provide a basis against which policies or actions could be tested.

I hope that the Minister will agree that, to improve the socioeconomic experiences of households, we need to measure and fully understand the problem of falling household financial resilience—and currently we do not.