Coronavirus crisis ‘exacerbating inequalities as richer build savings faster’
Rich families have been able to bolster their savings rapidly during the coronavirus pandemic, while poorer people have seen their bank accounts dwindle or even fallen into debt, new analysis suggests.
The Institute for Fiscal Studies (IFS) found that better-off people had been able to divert into savings money they had not spent on goods and services affected by lockdown -- so-called “forced savingâ€.
However, because lower-income groups spend proportionally more on essentials they have had less room to cut back. As a consequence they saw an average £170 per month decline in their bank balances between March and September relative to what they would expect in normal times, the IFS said.
Tom Waters, a senior research economist at the IFS, 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."
The top-earning one-fifth of households have spent, on average, £195 less per month on lockdown-affected goods or services, compared to £75 less among the poorest one-fifth.
The IFS research used bank account data from budgeting app Money Dashboard and was funded by the Standard Life Foundation.
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Mubin Haq, chief executive of Standard Life Foundation, a charity, said: "Increasingly the pandemic is exacerbating existing inequalities. The poorest were the least able to cut back on spending, as much of their expenditure is on daily essentials.
"Coupled with income falls, they saw their bank balances reduce by nearly £200 a month, whilst those on higher incomes saw increases of nearly £400 a month.
"Finances for those on the lowest incomes are likely to deteriorate further, especially if the government does not extend the £20-a-week uplift to universal credit (UC) beyond March next year."
Ministers have been warned that millions of families face a “significant decline†in income if the temporary UC boost is not continued. The government has said UC forms a key part of the safety net for people whose jobs have been lost to Covid-19 disruption. Citizens Advice has warned that many people may not be able to pay basic household bills if the uplift is axed.
In its new analysis, the IFS also said there had been little recovery in consumer spending since July, even in areas with relatively few Covid-19 cases.
After shops and other venues reopened in June, consumer spending started to rebound. But the IFS said this recovery petered out at the end of July, and that even by the end of September spending was still at just 89 per cent of the level seen at the same time in 2019.
Spending on the hospitality sector, which often employs lower earners, remains particularly behind. The IFS the general spending decline masked large differences between sectors.
For example, spending on groceries was up by about 10 per cent on 2019 levels, while takeaway spending has increased by 60 per cent as people have spent more time at home.
But in restaurants and pubs, holidays, and transport the spending recovery has stalled. Those in the still-struggling sectors are disproportionately low earners, the report said.
The shift towards online shopping also means that people's spending habits are not necessarily directly linked to whether they are living somewhere that has higher or lower cases of the virus.
Alex Davenport, a co-author of the report, 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."
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Additional reporting by Press Association
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