The Institute of Fiscal Studies (IFS) says that the pandemic has led to richer UK households being able to increase their level of savings, while poorer families have seen their savings levels fall and their debt levels increase, thus exacerbating inequalities that already existed.
The IFS believes that for a better off household, if their income has fallen in any way, then it is frequently the case that this fall is more than offset by a reduction in expenditure since Covid-19 struck the UK. It cites a concept known as ‘forced saving’– the reduction in spending on goods and services in areas that have been closed or subject to significant restrictions during recent months – and says that the average forced saving for a better off household is £195 per month, whereas it is only £75 per month in a less well-off household. Poorer households have always spent a greater percentage of their income on essential expenditure, giving them less scope to reduce their spending.
The average poorer household has seen their bank balance fall by £170 per month, while better-off households have almost £400 more in the bank each month.
The Institute also says that general levels of consumer spending remain sluggish. Even in September of this year, before the major resurgence in case numbers, spending levels were at only 89% of the level seen in September 2019.
Some areas have seen large increases though, for example, spending on takeaways has risen by 60% in 12 months.
Tom Waters, a senior research economist at IFS and an author of the report, said:
‘The inability to spend in many shut-down sectors of the economy has led to reduced spending across the income distribution. However, spending falls have been higher among higher income groups, and more than outweigh falls in income, with the opposite true for the poor. This means, on average, richer households have accumulated savings faster than normal, whereas poorer households have run them down or accumulated debts.’
Co-author Alex Davenport said:
‘The recovery in consumer spending initially seen following the easing of lockdown appears to have stalled, and spending in certain sectors remains well below levels seen in previous years with little change since the end of July.
This will have potentially devastating consequences for businesses in those sectors, and is true nationwide, even in areas where Covid-19 prevalence is still relatively low.’
The IFS did not look at areas such as travel expenses, but had they done so, that might have further highlighted the problem. Other studies have shown that workers in ABC1 professional occupations are twice as likely to be able to switch to home working, without loss of income, than those in C2DE manual occupations.
Sarah Pennells, head of financial capability at pension provider Royal London, commented on this when she said:
“Coronavirus discriminates when it comes to the financial consequences, with wealthier people effectively getting a Covid-19 bonus.
“Working from home is probably saving on the cost of commuting, lunches and after work socialising, which all adds up. But it’s a very different picture for poorer households, and it’s particularly worrying some are building up debt, which doesn’t just affect your finances, it can affect your mental health as well.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed by Scott Robert and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article