Context

The UK’s financial system, from billing to welfare payments, is built around the assumption that people have steady, regular monthly pay. However, this does not reflect the working lives of many. Research has shown that four in five low-income workers, and two in three of those on moderate incomes in the UK have volatile pay, with average volatility of around £250 per month. Even for people in steady jobs, volatile pay is normal and it has important potential impacts for individuals and their families.

This report is the final report from Nest Insight’s Real Accounts programme, a long-term research programme designed to make the understanding of volatility central to policy and provider innovation and debate.

The study

The research and analysis described in this report was conducted by a team on behalf of Nest Insight to explore the scale, drivers and impacts of volatile incomes.

The study used mixed methods of data collection over the course of a year (2023-2024), working with 51 in-work households in income deciles two to five, from across England (34) and Scotland (17). The sample was designed to reflect a range of backgrounds and circumstances, including by age (within the 18-65 age range specified by the study), ethnicity, household structure, housing tenure, income level, employment and benefits receipt.

The research adopted monthly interviews and digital financial transaction tracking to build an in-depth, contemporaneous understanding of households’ income, spending and money management strategies over time, collecting between three and 10 months of data per household.

Key findings

• The ‘volatility premium’: the hidden costs of income volatility are analogous to the poverty premium, and erode people’s financial resilience, limit their opportunities, and create long-term risks.
• Scale: Income volatility affected 4 in 5 low-income earners and 2 in 3 moderate-income earners in the UK. There was an average volatility per month of £500 per household. Income volatility was not fully resolved by increased household incomes.
• Drivers: Zero-hours contracts, fluctuating shifts, self-employment and combining multiple income sources, which limits access to financial services and products designed for people with predictable incomes.
• Financial impacts: Fees for falling behind on bills, higher-cost credit and insurance products, opportunity costs from direct debit payments, interest-bearing savings, annual insurance payments, and the inability to save or make investments for the future.
• Psychological and emotional impacts: A constant need to monitor and adjust spending and the fear of falling behind creates a scarcity mindset which negatively impacts decision-making and mental health.
• Implications: The report identifies opportunities for Government, employers and industry to address the problem of income volatility.

Points to consider

Methodological strengths or limitations

• The authors note that Real Accounts is not a nationally representative study. However, they recruited a diversity of working households across England and Scotland earning low to moderate incomes to their sample.
• Although the authors describe data collection methods which were both qualitative and quantitative, both methods related solely to a qualitative sample. As such, the results should not be assumed to be representative in any statistical sense.

Applicability

• The findings should be of interest to policymakers, practitioners and researchers at the national and local level who seek to understand the heterogeneity of low-to-moderate-income working households in the UK and thereby improve the effectiveness of policy and product innovation.

Relevance

• The findings are highly relevant given the heterogeneity of low-to-moderate-income working households, the diversification of financial pathways over the life span (e.g. portfolio careers), a decrease in secure employment and an increase in insecure work, particularly through the zero-hours contracts, temporary work, commission and self-employment.

Generalisability/transferability

• The findings are unlikely to generalise to other groups given the particular volatility challenges faced by low-to-moderate-income households.
• Some of the findings may transfer, at a high level at least, to other countries where there are similar income, employment and social security structures.