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Budget 2013: households cut spending by £12,000

Which? urges chancellor to put consumers first

George Osborne

Ahead of the Budget, each household has reduced their spending by over £3,000 a year on average since 2007, dealing a devastating blow to the economy and threatening a return to growth, new research from Which? can reveal. 

UPDATE: Read Which?’s full coverage of the 2013 Budget, including the highlights and a video analysis of the major announcements by clicking on our Budget highlights link.

As fears of a triple-dip recession grow, new Which? analysis of official data shows that on average each household has spent £3,150 less a year, over £12,000 in total, since the beginning of the financial crisis.

Of this, £1,750 is spending on discretionary, non-essential goods and services, which has fallen three times as much as essential spending on items such as food, housing and energy. The fall in discretionary spending has left a huge £136bn dent in the economy.

Find out more about how people are coping with the economy on our consumer tracker site

Spending cutback is a devastating blow to the economy

Non-essential, discretionary spending currently accounts for 25% of total GDP. New analysis shows how significant the fall in discretionary spending has been during the financial crisis, contributing 1.6 percentage points to the 1.9% fall in GDP between 2007 and Q3 2012.

This fall in spending by consumers facing a squeeze on incomes and low in confidence has had a huge knock on effect in the economy. For example, official data shows that since 2007 consumers have cut annual spending on eating out by £13bn. This coincided with a 10% reduction in output in the restaurant and catering industry with 90,000 fewer people employed in the industry.

New Which? research also finds that more than two million households are at a critical stage of squeeze and have defaulted on a housing or bill payment in the last two months, while many more are struggling to cope with the strain on their budgets. We found that:

  • Over a third (36%) households are feeling the squeeze in some way.
  • Nine million households, over a third (36%), are cutting back on essential spending.
  • Three and a half million households (14%) are cutting back and getting into debt.
  • Over two million households (9%) are cutting back and have defaulted on a housing or bill payment.
  • Out of all age groups young people are experiencing the most financial difficulty (40%) and people with children are experiencing the squeeze more than those without (45% compared to 31%).

Put consumers at the heart of the Budget, urges Which?

Richard Lloyd, executive director at Which?, said: ‘The squeeze on incomes and collapse in consumer confidence has led households to slash their spending during the financial crisis, with a devastating impact on the wider economy. The longer the squeeze goes on, the longer this spending setback will continue.

‘The UK has never before come out of recession without an increase in consumer spending, so it is critical that the Chancellor puts consumers at the heart of his plans for a return to growth.’

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