Richest were not only able to save more but were also less hit by job losses during the pandemic.
Well-off households have been able to save more than they have lost in income during the coronavirus crisis, further widening the gap between rich and poor.
‘Forced saving’ – declines in spending on goods and services substantially affected or shut down by lockdown – has been significant across all households, according to a report by the Institute of Fiscal Studies (IFS) thinktank.
But it was greater for those with higher incomes. The top fifth of households by wealth cut spending on these goods by 41% (£195 per month), compared with 30% (£75) for the poorest fifth, who spend more of their income on essentials.
In addition the IFS found richer households have seen less of a fall in their income. Combined with the cuts to their spending this has meant they have saved at a faster rate than normal.
Among poorer households spending falls have been much smaller and drops in income larger. On average this has led to a £170 per month decline in their bank balances between March and September, relative to normal times.
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Sarah Pennells, head of financial capability at pension provider Royal London, 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.”
After shops and other venues reopened in June after lockdown, consumer spending started to rebound, according to the IFS study. But by the end of September spending was still only at 89% of the level seen at the same time in 2019.
Spending in sectors most hit by lockdown, such as hospitality – which disproportionately employ low earners – remains the furthest behind normal levels.
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Compared to last year, spending on groceries and takeaways is about 10% and 60% higher than in 2019. For restaurants and pubs, holiday vendors and transport, spending is 20%, 60%, and 30% lower.
Mubin Haq, chief executive of Standard Life Foundation, which funded the IFS report, said: “Increasingly the pandemic is exacerbating existing inequalities. Those least able to cut back on spending, coupled with income falls, 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 beyond March next year.”
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