UK News Richer households cut back on spending but poorest struggle to save
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Britain's 'accidental saving' during the coronavirus pandemic has largely been driven by richer households cutting back on spending prevented by the national lockdown, but poorer households have been forced to run down their savings, a think tank has suggested.
Analysis by the Institute for Fiscal Studies found falls in income for the richest fifth of households were outweighed by their ability to cut back on non-essential spending, compared to those whose outgoings went more on essentials.
While the richest were able to cut their spending by around £195 a month on things prevented by the lockdown like meals out, the poorest fifth were only able to cut it by £75.
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As a result the poorest fifth saw an average £170 a month decline in their bank balances between March and September compared to normal times, the IFS said, while the richest fifth saw their balances swell by nearly £400 a month.
'Spending falls have been higher among higher income groups, and more than outweigh falls in income, with the opposite true for the poor', the IFS' Tom Waters said.
'This means, on average, richer households have accumulated savings faster than normal, whereas poorer households have run them down or accumulated debts.'
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Sarah Pennells, head of financial capability at Royal London, said of the research: 'Coronavirus discriminates when it comes to the financial consequences, with wealthier people effectively getting a "coronavirus bonus". Even if they're earning less, their spending has fallen by more.
'Anyone who's been 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.'
The IFS research, based on data from the budgeting app Money Dashboard, echoed data from the Office for National Statistics which suggested certain households benefited more financially from the coronavirus lockdown than others.
At a national level, Britain became a nation of savers as households put away a record 29.1 per cent of their disposable income between April and June, saved £54.6billion over that three month period and paid off billions of pounds in debt.
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But those savings were not evenly spread. The ONS said that although roughly £182 a week of household spending was prevented by the lockdown, younger households and renters spent more of their money on essentials and were less likely to be able to cut back.
Meanwhile the self-employed, parents and renters were far likelier to say their income had fallen as a result of the coronavirus, likelier to have used savings to cover living costs and less able to be able to afford a one-off expense than the UK population.
Those aged 30 to 59 were the likeliest to say their finances were affected at the height of the pandemic.
This trend has continued and recent surveys from Britain's national statistician have suggested household finances are increasingly under strain as a result of the coronavirus.
A third of people earlier this month said they would be unable to pay an unexpected bill of £850, levels last seen in mid-April, and 29 per cent were using their savings to cover living costs.
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And research from the Financial Conduct Authority estimated 12million Britons could struggle to pay their bills or afford loan repayments, just days before the furlough scheme and payment holidays on credit cards and mortgages come to an end.
|Week||% reporting reduced income due to the coronavirus||% using savings to cover living costs||% unable to save as usual||% borrowing or using credit to make ends meet|
|12 - 16 August||59%||18%||25%||15%|
|16 - 20 September||65%||29%||29%||19%|
|30 September - 4 October||63%||29%||25%||18%|
|Source: Office for National Statistics|
The FCA's Sheldon Mills said last week: 'We want to remind consumers, especially those who are newly in financial difficulty, that lenders are able to provide you with support. There are options available to you which will reflect the uncertainties and challenges that many customers will face in the coming months. It is also important that households in serious financial difficulty seek debt advice for support.
'We understand that many people will continue to live in financial uncertainty as the impact of coronavirus continues. Our surveys have shown that younger and BAME consumers have been impacted more than others, with a large amount of the population already having seen significant changes to their financial stability since the start of the pandemic.'
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