UK households’ cash savings are really struggling
At the end of March the ONS released their latest Quarterly national accounts. The stats indicated that household savings are at a fifty year low. A new figure released today indicates that savings are lower than even the March figures implied.
The national accounts ratio indicates the amount households and non-profit institutions serving households (NPISH) were saving after interest payments, taxes and consumption.
Household saving: national accounts and cash ratio
In the May Economic Review the ONS provided an alternate saving ratio that stripped out particular imputed items such as employers’ pension contributions and imputed rents which would not have been apparent to many households. While the non-cash ratio underwent a steeper decline during the same period, the cash ratio went negative for the second time in a decade in 2013 and was still there in 2015. Cash savings went negative before to the 2008 crash. While they have not hit the depths of 08 /09, it is striking that they have fallen below zero during a time of relative economic quiet, following thirteen quarters of economic growth.
The ONS themselves argue that cash savings are potentially a better measure for gauging households’ experience of their financial situation (though ideally we would strip out NPISH as well); for most households their employers pension contributions make only a very limited impact on how they budget week to week, or month to month as they won’t benefit from them for decades.
Looking at the ONS figures in more detail it is evident that the decline is the result of consumption remaining relatively steady while income has declined over the period. What’s telling is that looking at the National Accounts measure – which includes non-cash incomes – a small increase in imputed consumption does not outweigh the increase in the value of imputed income, which prevents the more precipitous declines we see in the alternative measure. However, looking only at cash, income has declined and this hasn’t been matched by an equivalent fall in consumption.
Despite the introduction of auto-enrolment, non-cash inputs like employer pension contributions and imputed rents are not evenly distributed throughout the population. Research by the Pensions Policy Institute indicates that women and BAME workers have on average a smaller pension, and ONS figures show that 35 per cent of workers do not yet have a workplace pension. Imputed rents are likewise skewed towards those who have managed to secure a property already, those households are likely to see a large contribution from this measure, the overall size of which may be obscuring how limited the range of households benefiting from it is.
On the one hand, this could be dismissed as an obscure statisticians quibble. However, it is indicative of just how uneven the recovery remains for many people. The headline figures may appear relatively sanguine, but dig a little deeper and it is apparent that even the negative indicators may be obscuring a more troubling story. Households that find it difficult to save are left highly vulnerable in the case of income shocks or sudden expenses. If that level of fragility extends out to the wider economy the consequences would be far from obscure.