The wealthiest households have reduced their spending by an estimated £23bn during lockdown, potentially leading to large savings — according to new economic calculations by the New Policy Institute.
This is income that would ordinarily be spent on holidays, entertainment, including restaurant and theatre trips, sport, commuting costs, even visits to the hairdresser.
An analysis of the typical spending patterns of households indicates that the top fifth of households (by income) had seen spending reduced by £23bn, while the second highest fifth have saved £14bn.
Spending has reduced for households that are lower down on the income scale, but here the savings are less significant.
This analysis – by Dan Corry, a former Treasury and Downing Street Adviser, Peter Kenway, director of the New Policy Institute and Steve Barwick, director of DevoConnect – points out that not all of this unspent money will translate into savings.
For example spending on some items, like food to eat at home, may have increased. Some of these households will have seen a drop in earnings, particularly if they have been furloughed (which pays a maximum monthly amount of £2,500). Others may have taken this opportunity to pay off debts.
These findings, revealed in an article in The Observer, chime with recent analysis from Aegon. It found that a number of savers were taking advantage of falling markets to make additional payments into their workplace pension scheme. This was particularly prevalent among younger savers: with 28 per cent of those aged 18-34 making one off payments, compared to 10 per cent of those aged 55-65.
This would indicate that there are a number of households who have made significant savings during the lockdown and are looking to invest or save this surplus cash.
The New Policy Institute says it remains to be seen over the long-term how these savings might be used. Some households many will simply boost spending when restrictions are lifted. Others may be reluctant to lock money away into longer-term savings plans, like pensions, if there are concerns about job security.
Others may invest these sums, potentially causing asset prices to rise.
However while some households have benefited financially, others are facing more severe financial difficulties, which is impacting their ability to build long-term savings.
A survey by Scottish widows found that one in 10 people – which equates to more than 3.1m savers – had stopped paying, or reduced the amount they pay into a pension as a result of the coronavirus crisis.
It found this was a particular issue for younger savers, with 18 per cent of those aged 18-24 and 11 per cent of millennials (aged 25 to 34) stopping or reducing pension payments.
Two in 10 of those surveyed said they were worried about paying their rent or mortgage, suggesting that pensions were being sacrificed to pay day-to-day bills.
The Scottish Widows survey found that part-time workers, young people and the self-employed had been the worst hit financially by Covid-19.