The money people did not spend while locked in their homes during the pandemic was cited in discussions between Chancellor Rishi Sunak and his team as a key reason for limiting further state funding, sources said. But the move was condemned by senior officials who took part in the talks because they ignored the poorest households without savings and those who had spent what they could have saved. “There is a lack of understanding among his team about how serious the situation is for those with the lowest incomes,” said a Whitehall source. “They have nothing in the bank.” Another expert said the approach had underestimated the scale of the cost-of-living crisis – which has caused the worst real income squeeze since 1945 – and failed to address the sharp inequalities between rich households and the poorer, income-dependent households. their counterparts. This was “particularly evident for those households that are unemployed and have benefits,” they said, adding: “The real impact on these households is, and will prove to be, quite catastrophic.” The government hoped that consumers would feel encouraged by the prospect of abandoning the pandemic restrictions, even when faced with cost pressures, the source added. “It is based on the idea that consumer confidence will recover and people will start spending again. “It’s the same logic as Eat Out to Help Out,” they said. The news of the Finance Ministry’s fiscal hesitation comes after Mr Sunak was widely criticized for bypassing the needs of the poorest in his mini-budget in March. A source close to the chancellor refuted allegations that he and his team had claimed that people were spending their savings and suggested that more help could come later this year for the hard-pressed households. “Energy bills are reduced until the autumn. “We will not know yet what the size of the rise will be, given the price volatility we are seeing now, and it is right to wait until we know how big the rise will be before we decide what the solution will be.” they said. Inflation has reached new highs of 30 years in recent months and is expected to rise further with the rise in energy prices this fall. The cocktail of rising prices pushed a closely monitored consumer confidence index compiled by market research firm GfK to -38 in April – the lowest level since 2008, during the financial crisis. Unusual saving habits during the lockdown of the pandemic informed the thinking of the Ministry of Finance, sources said. Those with higher incomes were able to create savings as they saw their spending on social activities, transportation and clothing decrease. In 2020, this effect pushed household savings to levels not seen since records began in 1963. The balance sheet situation of households has changed rapidly in recent months (AFP via Getty Images) Households saved 72 72 billion in 2019, compared with 1 211 billion and 3 163.7 billion respectively in 2020 and 2021 before taking into account inflation, according to the National Statistics Office’s quarterly accounts, which represent the most recent data. By the end of last year, household savings accounted for about 11% of GDP, according to estimates by Swiss bank UBS. However, while high- and middle-income households created a cushion, those with lower incomes, who in normal times seldom managed to make money and who had reduced income due to leave or continued to travel for work, did not. . The balance sheet of households has also changed rapidly in recent months, with savings either being transferred from cash to less liquid assets such as housing or investment, or simply being spent on tackling the rapidly rising cost of living. “Not all of these savings are available for immediate use. “This means that there is less stock than the direct headlines suggest,” said Anna Titareva, a senior economist at UBS, noting that the European Central Bank was investigating the behavior of savers in the eurozone. There is no comparable research from the Bank of England. “Lower-income households will be less secure,” he added, noting that this is important as “the tendency to spend is greater on income than on wealth.” Economists have shifted from hoping for a sharp and sustained recovery, after easing fears about the Omicron variant, to worrying about a troubled outlook. “We have turned from relatively optimistic about the history of savings to pessimistic,” said Andrew Goodwin, chief UK economist at Oxford Economics. Mr Goodwin does not predict a technical downturn – two consecutive quarters of economic contraction – next year, but believes the risk of one has increased. “We expect a 2% drop in real incomes this year,” he said. “This is enough to put the consumer sector in recession this year, even if it does not upset the entire economy.” Starmer says Johnson is “ostrich putting his head in the sand” because of the cost of living crisis Conservative commentators, along with economists, are criticizing the Treasury Department’s decision not to increase benefits in line with inflation. A lag in the way inflation is calculated means that there has been a sharp cut in real terms to support welfare-based households – the largest in 50 years, according to the Joseph Rowntree Foundation. A spokesman for the Ministry of Finance said: “We recognize that individual households have had very different experiences with the pandemic and many will have saved less than usual, and we are closely monitoring this situation. “These are troubled times – we were honest with the British public that we can not fully protect people from the global challenges we face, but our 22 22 billion package to ease the pressure is on those who need it most.”
