Today’s mini-Budget comes just a few weeks after the announcement of the new support package for household energy costs, and a similar package aimed at businesses. Arguments are raging over whether this is the right package of measures, and what it means for the long-term health of the Government’s balance sheet, but what’s beyond argument is that these measures will have a major impact on households’ finances.
Consumer confidence hits a new low
What’s also clear is that in today’s economic climate, many households are in real need of that support. In the UK, people are now more pessimistic than they’ve been at any point since Mintel started tracking consumer confidence back in 2009. Our September 2022 research showed that 23% of UK consumers were “really worried” about their financial situation over the next year, while 4% said that things were already so bad that they couldn’t get much worse.
The strain is particularly clear among parents and lower earners. Among parents of under 18s, 32% are either really worried or say they’re already at crisis point, and the figure rises to 37% among people earning less than £15,500.
Little impact on low-income households
For more vulnerable consumers, the intervention on energy costs has headed off the doomsday scenario of £7,000-a-year heating bills. The improvement in Mintel’s confidence data between August and September suggests that the announcement has, at least, allayed some concerns.
By comparison, though, today’s measures will have very little effect on lower-income households, who tend to pay little or no National Insurance, and who are vanishingly unlikely to be thinking of buying a new home in the near future.
The Chancellor announces the reversal of planned National Insurance increases
Image source: Twitter
Low-income consumer changes
For these households, rising food costs are as much of a concern as heating: 72% of households with an income of less than £15,500 have noticed increasing food and drink prices over the last two months, for example, and they are having to change their shopping habits as a result. They’re significantly more likely than the population as a whole to be trying to stick to a strict shopping list, for example, to be buying more reduced to clear items, or to be trying to substitute cheaper ingredients when cooking.
Bigger boost to high earners
Today’s news, then, is of much more relevance to higher income households. National Insurance (NI) reductions and the planned reduction of the basic rate of income tax to 19p will have some impact on most working households, but the benefit will be much greater for higher earners. The reversal of the NI increase is expected to save someone earning £100,000 a year just over £1,000 annually, for example, while the surprise announcement of the end of the 45% tax rate will have even more impact on anyone earning at least £150,000.
Higher earners are also far more likely to be homeowners, meaning that they’ll see much more benefit if house prices are boosted (or at least supported) by the changes to stamp duty.
Higher earners are already much more positive about their financial situation than the population as a whole. In September, for example, 86% of people with a household income of at least £75,000 were either confident that their financial situation would hold up over the coming year, or said that they had some concerns but still felt that they’d be fine.
Among these higher earners, there’s still plenty of slack in their budgets for discretionary spending: 46% had booked a holiday in the three months to September, 53% had bought new clothes, and 39% had been out for an expensive meal. Those background concerns are still there, and most had still noticed the impact of rising energy, fuel and food costs, but for these households the wave of support measures announced over the last month will have more impact in terms of underpinning lifestyle spending, rather than heading off financial meltdown.
A boost for private label and discounters
In terms of what this means for consumer-facing markets, then, the picture is mixed. For households who are already struggling, the energy support measures could well make the difference between financial survival or catastrophe, but they’re not going to unleash a wave of pent-up spending. We are still expecting to see a shift to private label groceries, an increasing reliance on both the grocery and the homeware discounters, and enforced cutbacks to discretionary purchases. Even with further energy rises off the table, food inflation will continue to eat into spending power, and a slowing consumer economy will put even more pressure on traditionally low-paid employment sectors such as leisure, foodservice and retail.
A shift to private label groceries is expected
Image source: Getty
High earners’ boost to overseas travel and home improvements
For higher earners, though, the dual impact of tax reductions and the intervention in the energy market will have a more positive impact on spending, even given yesterday’s increase in interest rates. British households built up an estimated £200 billion in additional savings over lockdown, with the growth concentrated among higher earners. At the same time, there is still considerable pent-up demand for overseas travel, and the long-term shift towards hybrid working is reshaping attitudes towards the home, and driving a need for flexible living/working space.
Overseas holidays could receive a boost
Image source: Getty
As the cost-of-living crisis started to hit home, even more affluent households will have thought twice about spending savings on home improvements or a high-end overseas holiday.
The relatively small reduction in National Insurance won’t, on its own, be enough to fund a family holiday or a home office conversion. But combined with the greater certainty over energy costs, it may give more financially comfortable consumers enough confidence to release some of those lockdown savings.
How the Bank of England will respond to these measures, though, adds another layer of uncertainty, even for higher earners. If the Bank feels that the tax changes are going to add to inflationary pressures (which seems likely), then consumers are likely to have to deal with higher interest rates in the very near future – and the faster rates rise, the greater the bill shock for anyone coming off a fixed-term mortgage rate taken out when the base rate was at or close to zero percent.
Mintel’s insights legacy – lessons from previous recessions
Mintel is celebrating its 50th birthday this year, meaning that we’ve been through multiple recessions. Although the causes for each recession are different, one of the more consistent threads is greater polarisation, both in terms of consumers’ financial well-being, and in terms of their spending habits.
The next few years seem likely to see a repeat of this pattern: enforced cutbacks among those who are most exposed to the slowdown, but also a degree of trading up among people who have escaped the worst of the economic upheaval, and who are looking for ways to lift their mood in an otherwise pretty downbeat period.
How to find more Mintel research
All Mintel clients have access to our monthly consumer confidence and spending intentions survey. For more analysis of how consumers are responding to the current economic upheaval, register for our upcoming webinar, British Lifestyles 2022: Facing up to the Cost of Living Crisis, while the corresponding British Lifestyles – UK – 2022 Report will contain in-depth analysis of the impact of the crisis on consumer spending, including sector-by-sector forecasts and analysis of how consumers have reacted in previous recessions.
