Introduction
1.UK households are facing a series of challenges and changes that are putting the health and sustainability of their finances under pressure: weak income growth since the financial crisis; low interest rates; greater freedom over how to use retirement savings; the rise of self-employment and the growth of the gig economy; an ageing population; and falling home ownership among working-age people, especially the young. Some of these pressures have their roots in the aftermath of the 2007–08 financial crisis and subsequent recession, but others are likely to be lasting structural changes that affect household finances in the long term.
2.Against this background, the Treasury Committee’s inquiry into household finances has had a broad frame of reference, covering all elements and drivers of the household balance sheet.1 The Committee considers that all aspects of household finances must be analysed together, if meaningful conclusions and recommendations are to emerge from its work.
3.Nonetheless, the Committee sought to keep the scope of the inquiry manageable by focusing at a relatively high level on a set of particular issues concerning household finances. These included:
- Trends in, and the sustainability of, aggregate levels of UK household savings and debt.
- The number and characteristics of over-indebted households, the causes of over-indebtedness and the scope for policy to ameliorate it.
- The state of households’ “rainy day” saving, and the effectiveness of policies intended to incentivise and support such saving.
- The state of and prospects for long-term and pensions saving, including the impacts of automatic enrolment, the shift from defined benefit to defined contribution, the role of the state pension and triple lock, and the effectiveness of policies intended to incentivise and support pension saving.
- Early evidence on the results of pension freedoms and the provision and take-up of guidance and advice on retirement provision.
- The implications of rising self-employment and the “gig economy” for household finances.
4.As part of the inquiry, the Committee held four dedicated oral evidence sessions. The first three of these covered the overall state of household finances, high-cost credit and over-indebtedness, and pensions saving and retirement provision. The final session covered the full inquiry with Financial Conduct Authority (FCA) directors and Ministers from HM Treasury and the Department for Work and Pensions. The Committee also took evidence at its regular scrutiny sessions with the senior leadership of the Bank of England and FCA. In addition, the inquiry received over fifty written evidence submissions. The Committee is grateful to all those who have assisted its work through the evidence they have provided.
1 The original terms of reference for the inquiry are available on the Treasury Committee’s website:
https://www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-committee/news-parliament-2017/household-finances-launch-17-19/
Published: 26 July 2018