UK households ‘hit harder by pandemic than those in France and Germany’

UK households are far more likely to have experienced a severe income shock during the pandemic than their French and German counterparts, according to new research.

The Resolution Foundation said households in the UK are also more likely to have taken on more debt in response.

Typical household incomes across all three countries were broadly similar in the year before the pandemic, according to the report.

However, on the eve of the crisis, the UK’s poorest households had incomes 20 per cent lower than those in France, while its social security and private savings safety nets were far weaker than in both France and Germany.

This weaker safety net meant that while UK households were just as likely to have experienced a negative employment change as French households during the crisis, they experienced a far bigger hit to their living standards than their European counterparts, the foundation said.

The report found that among households in which at least one person had fallen out of work, more than two in five UK households had suffered a severe income fall of at least 25 per cent - twice the level in France and significantly higher than in Germany (28 per cent).

A third of UK households have cut back their spending - a higher proportion than in France (23 per cent) and Germany (21 per cent).

Income shocks have fed through into wider financial challenges. The report said that among households that had taken an income hit during the crisis, UK households were more likely to have struggled to meet their housing costs than those in France and Germany (50 per cent, compared with 43 per cent and 44 per cent respectively).

UK households with an income hit were also twice as likely to have taken on more debt during the pandemic to cover living expenses than German and French households, with the proportion of households doing so at 17 per cent, 9 per cent and 8 per cent respectively.

The foundation said the uneven impact of the pandemic on household finances was likely to last far longer than the pandemic itself - with a higher proportion of the lowest-income households drawing on savings or taking on debt to support living standards compared with the highest-income households.

The think tank, which is focused on improving the living standards of those on low-to-middle incomes, added that strengthening households' financial position, particularly among low-income households, should be a priority.

Maja Gustafsson, an economist at the Resolution Foundation, said: "Typical households across the UK, France and Germany had broadly the same income levels on the eve of the Covid-19 crisis.

"But beneath this similarity lie big differences in households' financial resilience, with UK households having fewer savings to draw down, and a far less generous benefit system to protect them in hard times.

"These holes in UK households' financial resilience have been exposed during the Covid-19 crisis."