Rishi Sunak has rightly been praised for his swift and extensive support for employees. The Chancellor has also delivered roughly parallel measures for the self-employed — albeit with certain omissions. But that can’t be the end of it.
Lessons must be learned from the 2008 financial crisis — in particular we must pay attention to who benefits from massive government support and who doesn’t. Back then, it was the wealthy who took the most from the bailouts and from quantitative easing, which pushed up the value of financial assets and property. And as recession turned to recovery, that advantageous position further compounded inequality by rewarding the already advantaged as we saw house prices move upwards again — and out of the reach of aspiring homeowners.
This time we need to make sure that government intervention puts ordinary people first.
That’s certainly what the Job Retention Scheme does by making payments covering 80% of the wages of workers who’d otherwise be laid off — up to a cap of £2,500 per month. It’s clearly focused on the protection of those on modest wages.
However, it’s not only household incomes we need to worry about, but also outgoings — not least of which are debt repayments.
Debt weighs most heavily on those least able to afford it — both in terms of borrowing costs and type of debt (eg. mail order) and as a proportion of their income. The issue with our current unsecured debt burden is a distributional one which means it impacts those least able to cope more.
Consider the following from a Resolution Foundation study, published back in January. The poorest 25% of the population are far more exposed to consumer debt than anyone else – the median level of consumer debt constituted 17% of their pre-tax income in 2016 -18, compared with only 4% for those in the richest fifth of the population. Furthermore, the report found that “typical consumer debt-to-income ratios remain more than three times higher for lower-income households as compared to their higher-income counterparts”.
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