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My Lords, the Government may aspire to the uplands of the “greatest place on earth”, but social and economic headwinds may undermine that persuasive rhetoric. The growth in employment has been positive for households, but the labour market is softening and there is a growing body of evidence that household financial resilience is weakening. Many households are living on the edge. They are getting by, some comfortably so, but a single adverse event can push them over that edge. Low financial resilience is not reserved to those on low incomes; it has travelled up the income scale. Some are well placed to weather the storm of a sudden fall in income or unavoidable rise in expenditure, but others are not.
Each year, some 6 million working-age people face a life event likely to cause a substantial fall in income; a further 6 million face a sudden, unplanned expenditure need. These shocks arise for reasons such as illness, job loss, reduced hours, relationship breakdown, bereavement and new caring responsibilities. Low resilience has consequences for people, for welfare and health costs, for employers, and elsewhere in the economy. A range of factors increases resilience: access to employment benefits, state benefits, private insurance, savings, affordable credit, help from family and fewer pre-existing debts, but those factors are weakening, shifting more responsibility for financial resilience on to the individual, which many are ill prepared to take on.
Support from employer occupational benefits such as sick pay, redundancy pay and death-in-service payments is declining in coverage and value: only 28% of employers provide more than the basic statutory sick pay of £94.25 a week. State benefit rates have fallen in real terms; help with housing and mortgage costs has reduced. While it is true that more people are in work, one in six is self-employed, one in 12 has contracts with reduced employment protections and some 73% of people in regular jobs face significant fluctuations in monthly earnings. Fewer people work for large businesses, which traditionally offered benefits that mitigated income shocks. Now, 60% of private sector employees, more than 16 million people, work for small and medium-size enterprises and more than half, 8.8 million people, work for micro businesses.
On savings and insurance, the FCA found that 13% of adults have no cash savings whatever and that a further one in three has savings of only between £1 and £2,000, while 65% have no form of life or protection insurance.
Secure, regular work, with good employment benefits, is an important defence against low household financial resilience. Given the weight of the current evidence, moving away from a level playing field on employment standards, which the new Brexit allows, will not build the greatest place on earth but will push more families over the edge. Employment growth has been positive but as David Ramsden, a Deputy Governor of the Bank of England, observed, that businesses are increasing employment at the same time as they are reducing investment raises concerns over that resilience in the labour market. One explanation could be that businesses are substituting labour for capital, as hiring is easier to reverse than capital expenditure. A further explanation could be a shift away from capital-intensive, export-oriented businesses and into labour-intensive, domestically focused ones. Either way, neither is beneficial for financial resilience in households.
I welcome the pensions Bill. There is about £7.6 trillion of state, public and private pension entitlements in the UK pension system. The market and public policy supporting that system demand scrutiny and the Bill provides a further opportunity to do that. However, I am concerned it does not lock in that a pensions dashboard is for the public good, and that the best interests of pension savers are not to be traded off against the interests of financial providers. I am sure that this House will want to debate that issue with the Government at some length.
The Government could do much more to address the persisting gender pensions gap. Only about 36% of those eligible for auto-enrolment are women. Women’s ability to save is also constrained by income inequality throughout their lives. The highly regarded Fawcett Society has outlined the case for the introduction of a carers’ credit towards occupational pension saving, to ensure that those who take time out of paid work to care for children or adults would see their caring contribution recognised not only in the state pension system, where this is already the case, but also under the auto-enrolment system. Prior to the introduction of the flat-rate state pension in 2016, the principle of crediting carers applied to the state second-tier pension, S2P. That principle should not be lost but should continue to apply now that the second tier has transferred to private provision through auto-enrolment. I hope that the Bill will be the opportunity to push the Government on what progress they can offer to address this persistent gender pensions gap.