This article is more than 1 year old

This article is more than 1 year old

Three-quarters of workers do not receive the same pay from one month to the next, according to a report that says sudden plunges in income are putting low-paid people at risk.

The Resolution Foundation found pay volatility was particularly acute among the lowest earners and their income was more likely to fall than better-paid people’s.

Workers who experienced a wage cut typically lose £290, more than the average monthly grocery bill, the report found. For those who made less than £10,000 a year, the average was £180, which represented a greater decline in income.

The thinktank said this was likely to lead to “increased anxiety and stress as well as more debt, and fewer opportunities to save for the future”.

It has called on the government to address the problem by reducing the number of zero-hours contracts, in which staff do not have set hours, and reforming the much-criticised universal credit benefit plan.

“Much of Britain, from our bills to our welfare state, is built around a steady monthly pay cheque,” said Daniel Tomlinson, a Resolution Foundation research and policy analyst. “But our research shows this is not the reality of working life for many of us.

“This volatility is a particular challenge for low-paid workers, who are less likely to have savings to fall back on when their pay packets shrink, and yet are more likely to have big falls in monthly pay.

“Government and employers should look to support workers by reducing pay volatility, and mitigating its impact on workers’ living standards.”

The report, entitled Irregular Payments and part-funded by social wellbeing charity the Nuffield Foundation, analysed anonymised data from 7m Lloyds Banking Group bank accounts. It concluded that pay volatility was “the norm, not the exception, across Britain’s workforce”.

Less than 10% of people who stayed in their job took home the same pay every month, with fluctuating wages affecting the lowest-paid and youngest workers most.

The analysis found 80% of people who earned less than £10,000 a year experienced wage volatility, compared with two-thirds of people who earned more than £35,000.

This causes problems for low- to middle-income earners who, the thinktank said, typically cannot save more than £10 a month and have to borrow when their pay falls.

One person interviewed, named only as Hamida, said this was often due to the lack of guaranteed work on zero-hours contracts.

“Sometimes they might give me three shifts a week, sometimes they might give me five or six shifts,” said Hamida. “On a crap week, I get three shifts and I live off my credit card. On a good week, I can live out of my debit card.”

Irregular wage patterns were found to have profound implications for people on universal credit, which replaces six other forms of welfare with a single monthly payment and is due to be rolled out in full next year. This is because more than 40% of recipients are paid more often than once a month but their income is assessed on a monthly basis.

If they receive two payments for four-week periods within the same month, it could be counted as a 100% pay rise in an universal credit assessment, meaning a steep fall in benefit money.

The mechanics of the benefit could put people off seeking additional hours at work because their overall income may fall if they did so, said the report.

Struggling homeowners, working single parents and disabled people are already facing cuts of up to £52 a week owing to universal credit, according to analysis by the Policy in Practice consultancy and shared with the Observer.

The Resolution Foundation said allowing claimants to have more flexibility over their assessment periods would mean the new system could help those families who experience volatile pay.

The report said pay can rise as well as fall, citing the average notable monthly increase as 22%, compared with average declines of 20%.

It said two in five workers experienced “persistent volatility”, with significant changes in monthly pay at least six times a year.