In June 2017, the Office for National Statistics published its estimates for the ‘savings ratio’ for the first quarter of 2017. This is essentially a measure of the percentage of household income which is not going into current spending. The figures for Q1 2017 showed a sixth consecutive quarterly fall with a record low savings ratio of 1.7%, compared with 3.3% in Q4 2016 and 5.3% in Q3 2016.
These figures have generated much discussion as to why consumers are apparently ‘no longer saving’. However, our new policy paper “Has Britain really stopped saving?” casts doubt on whether this is a correct interpretation of the data and warns against policy makers jumping to the wrong conclusions based on the headline data. In particular, this is because the savings ratio calculation includes not just households’ day-to-day savings, but also the increase (or decrease) in the value of their pension funds, a factor which appears to be driving much of the recent fall.
The key findings of the paper are:
Commenting on the results Steve Webb, Director of Policy said:
Recent figures for the headline savings ratio have been eye-catching and seemed to tell a story of a dramatic slump in household savings. But leaving aside short-term factors like people paying lump sum tax bills before the January 2017 deadline, most of the recent change in the savings ratio has been about what is happening in the world of pensions and tells us little or nothing about consumer spending habits. Policy-makers need to be incredibly careful about reading too much into a single headline statistic such as the savings ratio when it may be painting a very misleading picture of what is really going on in UK households.
Director of Policy and External Communications
Steve Webb is Director of Policy and External Communications at Royal London. Before this he was Minister of State for Pensions between 2010 and 2015, the longest-serving holder of the post. During that time he implemented major reforms to the state pension system, oversaw the successful introduction of auto enrolment and played a key role in the new pension freedoms implemented in April 2015. He was awarded a knighthood in the 2017 New Year’s Honours.