Poorer households less likely to have saved during outbreak

A new report has found that low-income families have been far less likely to have strengthened their household budgets since the coronavirus crisis began.

Return to spender, published by the Resolution Foundation, analyses the impact of the crisis on families’ incomes and spending patterns, noting that while 33 per cent of low-paid workers have been furloughed, lost their jobs or experienced falling hours, compared to 15 per cent of high earners, the impact on family incomes has been more evenly felt.

Lower-income families are only slightly more likely than higher-income families to have seen their overall income fall since the crisis began, with 33 per cent of families overall having experienced this. The more even distribution of income falls across families partly reflects the fact that lower-income families have fewer working adults, and that many low earners live in households on middle or even higher incomes. It also reflects the critical job done by government policy in helping to cushion the incomes of those affected by the crisis.

However, the report uncovers a stark divide in terms of the impact of the crisis on families’ budgets, with 57 per cent of the richest fifth of families having reduced their spending since the crisis began, In contrast, 30 per cent of the poorest fifth of households have cut their spending. In fact, they are almost as likely to have increased their spending during the crisis (27 per cent) as reduced it.

Taking these income and spending trends together, the report notes that 38 per cent of high-income households have seen their spending reduced and their incomes stay the same or even grow, thereby strengthening their overall household budgets. Only 12 per cent of low-income households have seen their household budgets improve in this way.

Laura Gardiner, Research Director at the Resolution Foundation, said: “While low-paid workers have been far more affected by the economic crisis than high earners, this has translated into a more even squeeze on families of different income levels. This reflects the fact that low earners often live in middle- or higher-income families, while our welfare safety net has a crucial role in cushioning income falls for lower-income households.

“But the crisis is still posing much bigger challenges for lower-income families. Many high-income families have reduced their spending in recent months. Those on lower incomes, however, have found it far harder to reduce spending which, when combined with income falls, means many are seeing their ability to manage financially deteriorate. As policy makers prepare their plan to support Britain’s recovery, they must prioritise strengthening the family finances of low-to-middle income households.”

Anneliese Dodds, Labour’s Shadow Chancellor, commented: “We entered the coronavirus crisis with a quarter of UK families with less than £100 in savings. As the crisis has progressed, many of these families have been forced into avoidable debt. We have called directly on the government to make key changes to Universal Credit, legacy benefits and Statutory Sick Pay, which would prevent many families from falling into debt in this way. In the long-term the government must tackle the fragmented labour market and poverty pay which has caused so many families to be so lacking in financial resilience in the first place.”