Poorest hit hardest in the pocket by Covid

Well-off households saving more as others struggle to find money for essentials, reveals economic report

‘The recovery in consumer spending initially seen following the easing of lockdown appears to have stalled’

BRITAIN’S poorest families have borne the brunt of the economic pain from the pandemic, with falls in income far outstripping any savings from cuts to spending on going out or commuting.

Wealthier households have fared better, cutting spending while maintaining income, according to the Institute for Fiscal Studies.

On average, bank balances of the lowest-earning fifth of households shrank £174 a month relative to their finances in 2019, equivalent to 14 per cent of their pre-covid incomes.

It means that after seven months of lockdown and restrictions, the poorest households are down £1,220. By contrast families in every other income bracket managed to add to their kitties, with upper-middle earners saving on average £364 more a month.

The poorest spent much of their income on basics and essentials, so could only cut spending by £55 per month. But those with higher incomes enjoyed holding on to an extra £288 a month, amounting to more than a quarter of their usual spending, in part because of “forced saving” on the commute or in pubs and restaurants.

Mubin Haq, chief executive of the Standard Life Foundation, which funded the report, said: “Increasingly the pandemic is exacerbating inequalities. The poorest were the least able to cut back on spending.

“Finances for those on the lowest incomes are likely to deteriorate further, especially if the Government does not extend the £20 a week uplift to Universal Credit beyond March next year.”

The report said retailers such as grocers had done well, as spending surged by a third early in the pandemic. It was still up by 10 per cent last month compared with the same period of 2019.

Similarly, spending on takeaway food was up 60 per cent on last year’s levels.

Most other businesses suffered steep sales declines. Spending in restaurants, pubs and other recreational businesses collapsed by 90 per cent at the peak of the lockdown and remains a fifth below 2019 levels. Families were also avoiding holidays, spending half as much on hotels and travel as a year ago.

With working from home still common and visits to friends and family restricted, spending on public transport last month was down 60 per cent on 2019, with motoring costs down 30 per cent.

Alex Davenport, of the IFS, said: “The recovery in consumer spending initially seen following the easing of lockdown appears to have stalled.

“This will have potentially devastating consequences for businesses – even in areas where Covid-19 prevalence is still relatively low.”

The UK was likely to recover more slowly than other European economies with more caution about returning to life as normal, according to surveys of major economies by Deutsche Bank.