‘Big divide’ in how household budgets have fared during coronavirus crisis
Around two-fifths of high-income working-age families have strengthened their household budgets since the coronavirus crisis started, compared with just one in eight households on low incomes, research has found.
Some 38% of those on the highest fifth of incomes have seen their spending reduced while their incomes have remained the same or even grown, enabling them to strengthen their overall household budget, the Resolution Foundation said.
In what the Foundation described as a “big divide” in how families’ household budgets are faring, just 12% of those in the lowest income fifth have been able to strengthen their budgets.
More than half (57%) of the richest fifth of families have been able to reduce their spending since the crisis began, including one in 10 (10%) who have cut their spending by more a quarter.
By contrast, less than a third (30%) of the poorest fifth of households have managed to cut their spending.
People in the low income bracket are nearly as likely to have increased their spending during the crisis (27%) as they are to have reduced it, the Foundation said.
Poorer households are much more likely to say that their ability to manage financially has worsened than improved (37% compared with 10%).
Those in the top fifth meanwhile are about as likely to say their position has improved as they are that it has worsened (23% compared with 22%).
The research was based on a survey of more than 6,000 people in May.
Laura Gardiner, research director at the Resolution Foundation, said: “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 policymakers prepare their plan to support Britain’s recovery, they must prioritise strengthening the family finances of low- to middle-income households.”
The findings were released as a separate report, from StepChange Debt Charity, warned that a “personal debt tsunami” of around £6 billion of additional household debt directly attributable to the coronavirus pandemic is being stored up.
Based on survey findings, StepChange estimates that 4.6 million people negatively affected have already accumulated £6.1 billion of arrears and debt.
According to StepChange, people with an income of less than £30,000 are particularly likely to have fallen behind or borrowed to make ends meet.
The charity said that while temporary measures are in place to give relief to borrowers, longer-term measures are needed to protect struggling households against unaffordable repayment demands.
StepChange Debt Charity chief executive Phil Andrew said: “We were already dealing with a debt crisis, but Covid has so far added another four million people and counting to the number who are going to need help finding their way back to financial health.
“With £6 billion of additional household debt directly attributable to the effects of the pandemic, this is a problem that isn’t going to solve itself.”
Iain Porter, policy and partnerships manager at the Joseph Rowntree Foundation, said: “Rising costs and increased bills, combined with disruption to food banks and advice teams, mean some families are really struggling to keep their heads above water.”