The third family in the UK lived out of money before Covid

One-third of households in Britain were spending more than their income before the coronavirus outbreak, according to official figures, which put the uncertain financial situation before millions of people fell into a life crisis.

Less than half of these families had a financial buffer that would last less than a year, according to a report from the Office for National Statistics (ONS) based on data from the previous two years of the epidemic.

As the price cap rises next month, households face a record rise in energy bills, with rising spending “having a disproportionate impact on low-income households and their spending,” the report said.

While some households may be able to maintain high levels of spending by drawing on their accumulated financial buffers, ONS warns that “others have less to fall behind and may have to cut back or borrow to cover deficits.”

Among working-age people who lived alone, 57% spent more than their income. This was the highest percentage among household types and they were usually able to fill the deficit for an average of three to four months.

As household budgets expand through increased food and energy spending, the report estimates that 2 million households – or one in 14 – had poverty for income, expenditure and financial resources before the epidemic, based on data gathered from government surveys.

A family’s income is in poverty when their disposable income is less than 60% of the national average for the same family. Similarly, they remain in poverty if their expenditure is less than 60% of the average.

Financial Wealth Poverty is where a family, if they lose all their income including government benefits, cannot bring enough money to keep the three months income above the poverty line. Financial assets include cash, savings and shares but exclude property and personal pensions.

Of the three systems, households were generally in financial wealth poverty, numbering 11 million. Myron Jobson, a senior personal financial analyst at the Interactive Investor website, says the data reflects the financial struggles of a large segment of the UK population.

“Many of the financial pressures from the pre-covid experience have become a choke point today in a generational style of increasing the cost of living,” Jobson said.

Leith Khalaf, head of investment analysis at financial institution AJ Bell, said the figures were “deeply troubling”.

“They show that many people in the UK do not have enough income to cover their expenses and lack the financial resources to deal with any emergency,” he said.

He said those who do not have reserves while the labor market is strong may be right, “If the Ukraine crisis and the resulting increase in energy costs provoke a global recession, unemployment could rise, and many people would be left without a financial lifeboat.”

ONS has developed an online calculator that enables you to compare your financial situation with other households.

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