Three-in-ten working age adults who have faced a sustained income hit during the pandemic are now unable to afford some basic household costs such as heating and fresh fruit and vegetables, as the persistence of the crisis exacerbates divides in how low- and high-income households are coping financially, according to new Resolution Foundation research published today (Monday).
Caught in a Covid trap – which includes analysis of a detailed online YouGov survey, supported by the Health Foundation – examines how household incomes, spending and savings have evolved as the crisis enters its eighth month.
The report finds that working-age adults have only marginally seen incomes improve as the economy reopened over the summer, with the proportion of adults reporting a drop in incomes falling from 27 to 23 per cent since the first lockdown period (April-June).
In fact, seven-in-ten (70 per cent) households who experienced an income fall during the initial lockdown were still reporting an income drop in September. This reflects the fact that while economic activity resumed over the summer and furlough rates fell, unemployment has risen while significant income hits for the self-employed have persisted, says the Foundation.
Caught in a Covid trap also shows that divides in household spending, savings and debt have come to the fore as the crisis has persisted.
During the reopening period, high-income adults were more likely to have seen their family budgets improve than deteriorate compared to their pre-pandemic position. The report finds that 35 per cent have seen their income rise relative to spending, compared to 24 per cent who have seen their income fall relative to spending.
In contrast, low-income households were more than twice as likely to have seen their budgets deteriorate, with 32 per cent seeing their income fall relative to spending, compared to just 13 per cent seeing it rise.
The Foundation says that the contrast in how low- and high-income households have coped financially with the crisis, is demonstrated by greater savings among better-off working age adults (with 37 actually saving more – three times the rate for the poorest households), and rising material deprivation for poorer individuals.
The report finds that the duration, not just the depth, of the crisis is affecting household finances.
This has meant around three-in-ten adults who have seen their income fall throughout the crisis are now experiencing material deprivation in some form – where they are unable to afford basic household costs such as heating, saving £10 a month, fresh fruit and vegetables, or being able to replace a fridge or washing machine.
Over half (56 per cent) of those who have seen a sustained income fall since the crisis began are also relying on borrowing or help from family or friends to pay for everyday living.
The Foundation says that with the crisis lasting far longer than many first thought, and with unemployment rising, government support will be just as vital in the coming months as it was during the initial lockdown – particularly for the growing number of households who are going to rely on Universal Credit.
Karl Handscomb, Senior Economist at the Resolution Foundation, said:
“Government support has played a vital role in protecting family incomes during the initial economic shock from lockdown. But as the crisis has persisted, new divides have emerged in how families are coping financially with the crisis.
“For high-income adults, spending reductions have in many cases left family budgets in a better place overall. But that has not been the case for low-income adults, who have instead experienced deteriorating finances. Those that have faced persistent income falls are now facing increasing deprivation.
“With the crisis set to continue for many more months at least, the Government should strengthen the social safety net that more families are coming to rely upon by extending the boost to Universal Credit, rather than withdrawing it before the crisis is over.”