scenarios for 2020
At the time of writing we are in Party conference season. This always coincides with reports from think tanks seeking to explore the difficult issues we face. Every now and then a report comes along which is likely to have an important influence on economic policy making and political positioning by the main parties. In September the Resolution Foundation published a report “Who Gains from Growth – Living Standards in 2020”. In my view this report sets out exceptionally well the strategic economic landscape which will determine what some aspects of UK society will look like in the next 10 years or so.
Although it focuses on the incomes of low to middle earners – precisely the same group to which the simple products initiative is designed to address – it also addresses high income ones. So what does the RF report suggest? In essence it sets out two groups of scenarios.
The first group of scenarios assumes no major interventions in social policy ie we leave the market to get on with it. The result is that there will be more jobs at the top and bottom ends of the jobs market – high-pay/high-skill and low-pay/low-skill employment. The fastest-growing sector will be in the top three occupational classes of managers, professionals and top technicians. At the bottom end, growth is expected in low skilled service roles, with more than 700,000 new jobs being created in retail, caring and leisure. Traditional jobs in the middle, for example in skilled manufacturing and administration, will fall.
In this world, working-age households below middle income in 2020 will be worse off than those in the same position a decade earlier. A household at the bottom of the low to middle income group in 2008-2009 had an income of £10,600 a year. By 2020-2021, this falls to £9,000 a year – real terms fall of 15 percent. Even a household at the top of the low to middle income group would also see its income drop from £23,000 to £22,200, a real terms fall of three per cent.
Finally, the share of household income from the state for these households is expected to fall substantially. In 2008-2009, around 20 per cent of gross household income in this group came from the State. In 2020-2021 this is projected to fall to 16.4 per cent.
For protection insurance the effect will be that even though low to middle income groups will have more need for life and income protection insurance than ever purchasing it will present a major affordability gap. On the other hand there will be a growth in higher net worth clients – giving a bigger market for IFAs who market in this sector.
The second set of scenarios assumes State interventions. RF look at three possibilities – boosting low wages (current Labour Party and Boris policy), improving skills and raising female employment but taken in isolation these three interventions lead to only modest improvements for those in the bottom half of the income distribution. Only when all three are combined do we arrive at a situation where many people in the bottom half become substantially better off. But, of course, even here the top earners will continue their rise in income levels.
If the combined set of State intervention scenarios comes to pass we could see the affordability gap for protection insurance for low to middle earners becoming less of an issue. And, combined with a continued fall in State provision, this would create an ideal growth market for simple products.
Whichever sets of scenarios come to pass though the future of protection sales by IFAs to higher income groups looks promising.
This piece was first published in Cover magazine.