This report investigates the financial needs of those in the CDE
socio-economic groups, and assesses how well financial services companies are meeting their financial requirements. Almost 60 percent of the population of working age are in socio-economic groups C1, C2, D and E. The C1s are the most numerous, at over 7.7 million, just over one in five of the working population. The unskilled Es are the least numerous, comprising less than 5 percent of the working-age population, but in the whole population they are joined by retired people who are dependent on the state pension. Women outnumber men considerably in the lower-income groups: around 88 percent of working women are in groups C1C2DE, compared with 70 percent of men, according to the General Household Survey for Great Britain.

C2 workers are still falling in number — by more than 2 percent between 1999 and 2001. This reflects skills shortages in trades such as electrics and plumbing, as well as the decline in some traditional occupations, notably mining, steelmaking and skilled engineering trades in the manufacturing industry. The number of non-manual C1 workers increased by almost 4 percent between 1999 and 2001. Many of the new C1 jobs are in call centres and are filled by women.

There are various dominant themes in the finances of CDEs. They have an early start to earning, tending to go into work straight from school, or to study vocational subjects at further education college. They rarely have higher education to degree level or beyond. Financial services companies need to persuade these young workers to save, invest and insure before they take on heavy family responsibilities. The absence of financial education in schools, and often in colleges too, is a big handicap.

CDE men tend to have adequate earnings when they are in work and doing many hours of overtime, but they are vulnerable to accidents and occupational diseases. Women suffer financially from the ‘overtime’ culture in the UK, because their family responsibilities mean that they often cannot commit themselves to regular overtime. This puts them at a disadvantage for both promotion and in the financial services market. Their low incomes prevent them from saving much towards retirement.

Benefit rules discourage people on low incomes from struggling to amass assets or capital because of the small amounts they are allowed to keep if they do need state help. However, the amounts have been increased recently, — for example, from £3,000 to £8,000 (£12,000 for pensioners) for Income Support and £18,500 for state-financed care in a nursing home.

Scarcely any expansion in wealth is likely during 2001 and 2002. This is a signal for ‘precautionary’ financial services, notably income-protection insurance and private medical insurance, because income earners with responsibilities will seek to minimise the risk of interruptions to their income stream. Cash deposits will rise, even though interest rates will be low and returns on standard savings accounts may be negative — for example, if inflation is 3 percent and the interest rate on a deposit is 2 percent, the depositor would have a negative return of 1 percent. Recent stock-market turbulence will make the British even more cautious than normal, and they will be nervous of equity-based investments. National Savings has a good opportunity to increase its business. The nation needs stakeholder pensions, but these will have to be marketed with far more flair than at present. Householders will be keener to ensure that they are fully covered by buildings and contents insurance, if they can obtain this kind of insurance.

Changes in wealth distribution between 2001 and 2006 will benefit the C1 to E groups only marginally overall. Within these groups, the C2s and Ds will do better than the Es, and the C1s are likely to do the worst of all. The new tax credits will benefit working households on low incomes, if they have children, and so semi-skilled Ds and unskilled Es will gain. Many working C1s will earn just too much to receive credits, and their position overall is unlikely to improve. C1 jobs in offices are vulnerable to further automation, and this will help to keep wage rises low. Pensioner Es benefit from the Minimum Income Guarantee, and C2s, especially skilled tradesmen, have quite a promising outlook.

The private sector will not be able to deliver all of the financial security that their customers want. Mis-selling of pensions, poorly performing endowments, investments that lose value as well as gain, property that is too vulnerable to insure, etc., indicate that it would be in society’s interests for the public sector to take over a larger share of responsibility for social protection. In a riskier, more unstable world, it is beyond the capacity of the private sector to offer high-quality financial products at reasonable cost, year in and year out.