‘Richer households may boost savings as spending on some activities falls’

Richer households may be effectively be forced into boosting their savings during the coronavirus shutdown, a think-tank has claimed.

The Institute for Fiscal Studies (IFS) said many better-off households may increase their savings, as spending on “banned” activities falls.

It argued that because poorer households spend a bigger chunk of their income on necessities, they will be less resilient to any falls in income.

Around a quarter of household spending goes on outgoings that are currently not possible or strongly discouraged – such as eating out, commuting, going on holiday and transport, according to the IFS.

Around a fifth (20%) of spending by the richest fifth of households goes on eating out and taking holidays compared with a smaller chunk (12%) for the the poorest fifth, it said.

Because lower-income households focus a higher share of their spending on necessities (55%) than higher-income households (39%), they are less resilient to any falls in income, it argued.

Alex Davenport, a research economist at the IFS, said: “Social distancing measures aimed at containing the spread of coronavirus are likely to have a significant impact on households’ spending.

“Before the lockdown, on average one quarter of household budgets was spent on transport and leisure – areas of spending that will fall substantially during the lockdown.

“Spending on these sorts of goods and services was more important for richer households than poorer ones. Poorer households by contrast tend to spend more of their budgets on bills which are harder to avoid, such as rent, food and utilities. This makes it harder for these households to cope with temporary reductions in their incomes.”

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