KPMG says British consumers spending more on essentials, less on luxuries than Indian ones. Is this really true?

The devil is in the detail of the report but one inescapable conclusion is that for the sake of UK plc, Britons need a pay rise

James Moore
Chief Business Commentator
Tuesday 14 November 2017 12:29
The High Street is suffering as UK consumers' disposable income shrinks
The High Street is suffering as UK consumers' disposable income shrinks

It certainly makes for an eye catching headline: Apparently UK consumers spend more on essentials (76 per cent) and less on luxuries than those in India (68 per cent).

But is there really any truth in what KPMG is saying, or can it be safely tossed on the pile labelled 'PR Stunt'.

Don’t do that just yet, because the city firm’s report ‘Me, My Life, My Wallet’ makes a serious point despite its buzz word heavy text and fondness for marketing speak (presenting the Five Mys — a framework to help navigate the complexity of consumer decision making!).

The Indian number is lower even than the one for the US (72 per cent), but needs to be put in some context. For a start, there may be a difference in perception in what is classed as an essential in the three countries, and differences in pricing too.

The Indian economy, which grew at an enviable 7.1 per cent last year, is also creating a class of affluent consumers with the capacity to spend a lot, and at quite a clip. Of just as much significance is the fact that the survey on which the report is based coincided with attempts to bring its hidden cash economy into the taxation system.

One of the effects was a spending spree and it’s notable that Chinese consumers, where that didn't occur, reported spending 79 per cent of their incomes on essentials.

The point about Britain, and one that should scare the businesses that are the report’s target, is that the amount of money the British consumer has to spend on anything other than essentials is declining.

That the share of ‘My Wallet!” (yes, that’s one of the Five Mys!) accounted for by ‘luxuries’ is under pressure can be seen in the latest BRC-KPMG Retail Sales Monitor.

It revealed a record decline in non-food retail sales, which fell by 2.1 per cent over the 12 months to October 2017. That’s the steepest fall in five years, and it might have been worse were it not for consumer borrowing.

The Bank of England has expressed concerns about the rate at which that has been growing. So this is a tap that might soon get turned off (and it should be).

The report’s message to retailers confronted by this chilly environment: Get close to your consumers and get smart! Use ‘insight driven growth strategies’! Apparently that involves calling upon advanced analytical tools to predict consumer behaviour and to then personalise products/services.

In an increasingly complex world, that makes some kind of sense (you won't be surprised to learn that KPMG has a product ready and waiting).

It might help businesses still more if they talked to their customers, as opposed to putting up walls (phone menus, contact forms or e-mails that don’t elicit meaningful responses etc) designed to prevent that. Just a thought.

However, even businesses that do all that can't escape the declining pot of consumer cash they are competing for.

The solution to that existential crisis is defined better by the TUC than KPMG. It says Britain needs a pay raise and, for the sake of the economy, it does.

Chancellor Philip Hammond could get the ball rolling by listening to the Institute for Fiscal Studies and ditching the public sector pay cap. A recent study by the Institute for Public Policy Research suggested it might not cost as much as he thinks if the benefits from the economic growth and extra tax that would follow are taken into account.

But it needs to come from the private sector too, and with an economy reeling from the Conservative Government's disastrous Brexit policy - if it even has a policy beyond bowing to the extremist demands of 40 or so hard right backbenchers - it’s hard to see it happening.

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