The pandemic has “turbo-charged” wealth inequality
The pandemic has seen a savings surge across the UK. Not everyone has benefitted. The rich have got richer, both relatively and absolutely.
Research from The Resolution Foundation (TRF) “shows that the crisis has turbo-charged the pre-pandemic trends of rising wealth” and that these spikes in inequality are likely to persist into the post-Covid recovery.
This finding, from TRF’s latest wealth audit, is set against a longer-term pattern of rising overall wealth and rising inequality, taking place over decades.
This means that lower-income individuals and families have been hammered by Covid-19 (which has, in terms of money, actually gone OK for better-off groups) and would suggest that those with lower incomes should be the focus of all recovery plans.
Given that a £20-per-week drop in Universal Credit and the end of furlough are both on the cards, this does not appear to be the case.
The price of milk
It is important to place different financial situations in some context.
Earlier this summer, Safefood (a cross-border governmental body responsible for promoting food safety and healthy eating) published research showing that low-income families in Northern Ireland have to spend up to 46% of their weekly income to afford a basket of healthy food.
What is the cost of a healthy food basket in Northern Ireland in 2020? found that two-parent families with two children need to spend as much as £162 per week to eat well.
If both adults rely on social security their weekly income is around £355, meaning food is 46% of their income, while if one adult is employed at national living wage family their income is around £509, making healthy food 32% of the total.
People who are spending almost half their income on food (and, presumably, another hefty slice on housing costs) are unlikely to build up much in the way of savings.
This tallies with the finer details of what has happened to household finances.
Building wealth, in some ways
In mid-July The Resolution Foundation published (Wealth) gap year - The impact of the coronavirus crisis on UK household wealth, which noted that the pandemic marks the first UK recession in at least 70 years where total individual wealth has increased – up by £900bn, a six percent rise compared to pre-pandemic levels.
Some of this is volatile, as the main factor behind this rise is asset price appreciation (such as rising house prices), which may fall in the coming months and years meaning those gains disappear.
However, the research also increases in aggregate savings (up £200bn) and falls in overall household debt. Other key findings include:
- The increase in wealth has come with important distributional consequences, with families in the middle of the wealth distribution seeing their wealth rise the most in relative terms, while those at the top enjoyed the largest absolute gains.
- Those at the bottom of the income distribution were more likely to see savings decrease, and were less likely to pay off debt, than families higher up the income distribution.
- The wealth gap between the richest 10 per cent of families and the median family grew by £40,000 during the pandemic and now stands at 55 times typical household income.
- Wealth gaps look set to persist as households report they are likely to maintain higher saving rates following the pandemic due to worries about the future economic outlook and changes in preferences.
The rise in savings, despite the recession, is linked to social distancing measures and other restrictions. There have been far fewer ways to spend money.
But not everyone has felt this. Lower-income houses are more likely to have run down savings or increased debt.
Individuals and families with lower incomes are less likely to have savings and/or be able to save, in general. They are also more likely to have been placed on furlough (meaning a 20% drop in income) or to have lost their employment entirely.
The Financial Conduct Authority says that almost 20m people say the pandemic has left their financial situation significantly worse. When combined with TRF’s study, it is clear that the majority of those people will be in lower-income households.
Furlough will soon end, likely leading to more job losses, while Scope wrote recently about the obvious cruelty (and economic illiteracy) of pushing ahead with the planned £20 drop in Universal Credit.
Build back better
Compared to the rest of the UK, Northern Ireland has a huge proportion of jobs that pay poorly.
In November, the Nevin Economic Research Institute (NERI) outlined some points of note from NISRA’s 2020 Annual Survey of Hours and Earnings (ASHE), which offers a yearly look at wages in NI.
The latest ASHE covers the period up to April 2020, so largely outside the pandemic but including some of the most significant lockdown measures.
According to Dr Lisa Wilson at NERI: “The reality is that 25% of employees in Northern Ireland have earnings below the real living wage. That is, the wage which is necessary to obtain a minimum acceptable standard of living.
“This is not a new phenomena. Indeed, it has got precious little to do with the Covid-19 crisis. Rather it has more to do with our longer term failure to take seriously the issue of low pay and ensure that the returns from work are decent and can sustain the livelihoods of workers.”
- 25.3% of employees earn below the Real Living wage;
- 20.6% earn below two-thirds of UK median hourly earnings excluding overtime;
- 17% earn below the National Living Wage - these include those exempted by the structure of the minimum wage and so include workers aged under 25 years old and apprentices.
- 10% of all employees had hourly earnings below the national legal floor for their age group.
This should be of great concern to anyone interested in Northern Ireland, and how it will recover from the pandemic.
The idea of Building Back Better is a nice one (whatever it means), and presents a positive spin on how we can change the economy to work better for everyone in NI.
However, to do that we also have to recognise that economies change all the time, all by themselves, and the pernicious ways that Covid-19 has accelerated longer-term trends in inequality should be foremost in the minds of everyone interested in steering any recovery.
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