Lockdown’s saving grace

The pandemic has seen household savings soar to a record high

WITH a second national lockdown potentially on the way, there is one silver lining - the restrictions are helping us to save more money than ever before. Figures from the Office for National Statistics reveal that as a nation, we saved 29% of our post-tax income during the height of lockdown, between April and June.

That’s by far the highest ratio of earnings saved since at least 1987, when records began.

For comparison, the previous record high was seen between April and June of 1993, when 14% of the UK’S disposable income was saved rather than spent.

The recent increase in savings was driven by a huge decrease in consumption of £80.5 billion, as lockdown measures prevented households from spending money on non-essential items at a rapid rate.

In particular, large falls were seen in spending on restaurants, hotels, clothing and footwear, recreation, and transport - with spending on car registrations and sales falling by 97%.

In addition to having fewer opportunities to spend, many people have opted to purposefully cut back their spending to try and offset potential losses in income.

This is reflected in the decline seen in households’ overall perceptions of their financial wellbeing, as measured in IHS Markit’s household index.

Tim Moore, director at IHS Markit, said: "Almost four times as many survey respondents reported a decline in job security as those that saw an improvement in July.

“Large numbers of households are therefore maintaining the cautious spending habits adopted during the early stages of the pandemic and are now focussed on paying down debt and saving where possible."

Real household disposable income (which is income after tax and after accounting for price rises) decreased by 2.3% between April and June - a reversal of the growth seen in recent years, and the largest fall on record.

This drop is due to the decline in wages and salaries that has resulted from both a decrease in employment, and wage reductions linked to the furlough scheme.

The ONS say the decline in household income would have been much more severe had it not been helped by the various government support schemes.

There has also been a substantial increase in applications for Universal Credit -with payments preventing a total loss of income from unemployment, but generally well below average earnings.

Between March and April 1.5 million UC claims were made, and the total number of people receiving unemployment benefits rose from 856,000 to 2.1 million.

Lower overall income resulting from this will have contributed to driving up the savings ratio, as even the same amount of savings will make up a higher proportion of posttax income.