After two years of Government-imposed belt tightening, Brits are now saying they have no more notches left on their belts – the country is back in recession and even the International Monetary Fund has waded in to suggest that more is done to stimulate the economy. So how much longer can the coalition’s austerity programme continue?
The Government may have made a hasty retreat on ‘pasty tax’ and static caravans this week, but cash-strapped Brits are calling for a bigger U-turn – on the country’s economic policy.
Two years into the coalition’s austerity programme, more than seven in 10 people now want Chancellor George Osborne to change tack and put growth before cuts, according to a ComRes poll.
With the UK back in the grip of recession, just 17 per cent disagreed that the Government should soften its stance, while 11 per cent said they didn’t know.
And today, research by the UK’s largest insurer reveals that one in three families simply can’t afford to put any more money aside for a rainy day because every penny is already accounted for.
This figure rises to a staggering 65 per cent of single parent families, Aviva’s Family Finances Report shows.
The study also reveals that despite the UK’s austerity measures, debt is outpacing both household incomes and savings as families draw the line on austerity.
Of the two thirds of families who believe they could afford to save a bit extra, the typical affordable amount is around £50 a month – less than a tank of fuel – but three quarters of families admit there are things they would refuse to sacrifice in order to save more, such as keeping pets, summer holidays, not turning down the heating, and cable/ satellite TV, according to the report.
When looking at what people would be prepared to give up to boost their savings, families were more likely to cut back on food costs by stopping regular takeaway meals, or buying basic ranges in the supermarket, but less likely to give up little luxuries such as takeaway coffees and breakfast on the way to work.
Encouragingly, life insurance and pension payments were also among the things people wouldn’t cut out, Aviva said.
While most families admit they could put something extra aside, only one in five sets aside a specific amount each month, the poll indicates. It is far more common for families to save sporadically – for example following a windfall – or by putting away any spare cash at the end of the month. One in eight families admits to using a penny jar or piggy bank.
Families are becoming more concerned about their financial responsibilities, and for the first time since the Aviva report series began protection products held by families have taken a small upward turn. Now 42 per cent of households say that they hold life insurance, up from 36 per cent in May 2011, while 14 per cent have critical illness cover compared with 13 per cent a year ago.
However, the number with private health insurance is static at 13 per cent, and the proportion of families with income protection insurance has fallen from 11 per cent last year to nine per cent.
Read more: Budget 2012: Are you a winner or loser?
The study also reveals that family incomes have risen in the past year, along with savings – but so have debts.
Despite the recession, the average household income has grown four per cent to £2,150 per month, while savings pots have typically swelled by six per cent.
But single parent families are feeling the pinch after seeing an eight per cent drop in their average monthly incomes to £805 this month, down from £874 in May 2011.
And while income from state benefits has decreased across the board following Government reforms – 18 per cent in May, down from 23 per cent in May 2011 – the picture is tougher for single parents with just 42 per cent now reporting income from benefits, compared with 61 per cent a year ago.
Meanwhile, the typical amount held in savings by UK families has risen slightly over the last year from £1,163 to £1,228 and, in line with this, the number of families with no savings at all has fallen to a record low at 24 per cent, compared with 28 per cent in May 2011.
However, while average debts fell from £10,418 during the past quarter to £9,314 they are still a whopping 58 per cent higher than a year ago, with credit cards, loans and overdrafts accounting for the majority of these debts.
These results resonate with debt figures released by parenting website Netmums in February, which revealed that one in five mums was skipping meals so her children could eat, while a quarter of families were living on credit cards, with five per cent taking payday loans to stay afloat.
The study also shows that almost half of families surveyed had sold or pawned goods to make money to live, while one in six parents was being treated for a stress related illness due to lack of cash.
Meanwhile, a report published by Unicef this week is warning that the coalition’s austerity drive could have a “catastrophic” effect on the fight against child poverty.
According to Report Card 10, the UK did better than many other rich countries in combating deprivation immediately following the financial crisis in 2008. But it claimed that spending cuts could wipe out the progress that has been made.
David Bull, executive director of Unicef UK, said: “We know that the number of children living in poverty in the UK is set to increase due to spending cuts.
“This will be a catastrophic blow to the futures of thousands of children, putting at risk their future health, education and chances of employment.”
He added: “One thing is clear: government policies to tackle the deficit must not harm children.
“There is only one chance at childhood – we cannot see a generation, growing up in austerity, denied the chance to fulfil their potential.”
So will the UK ever switch to a Plan B? The IMF has said that the Bank of England could look at trimming interest rates and expanding quantitative easing to help the economy – and added that if Britain stays in recession, it may want to “reconsider” how quickly it is reducing the deficit.
Free guide - Saving for children
Sign up to the Myfinances.co.uk newsletter to receive the latest financial news direct to your inbox.