The wealth gap between rich and poor people in the UK is widening as a result of the ongoing coronavirus pandemic and the ensuing lockdowns, according to an Oxford-based think tank.
Research from the Centre for Enterprise, Markets and Ethics has found that a third of British people now have less than £1,500 in the bank, because many working class employees have seen their earnings slump as they have been furloughed on 80% of normal pay or been sacked. Around 314,000 people lost their jobs in the three months to September.
White collar employees, on the other hands, predominantly middle class workers, managed to strengthened their financial positions by ploughing more of their income into savings.
Many have been working from home since the first lockdown in March, which allowed them to bank savings from not having to commute to work and being spared costs of office drinks and lunches.
As a result, CEME found that savings ratios have leapt from 5 per cent in 2019 to nearly 30 per cent this year.
Despite households on average having been able to save 29.1 per cent of their disposable income since March, the think tank said there is a stark difference in savings between the predominantly middle classes, who have maintained a steady stream of income throughout this period, and those that have not.
“Financial inequality is rising fast against a historic background of big differences between the wealth of the rich and the poor. The so-called wealth gap is becoming a chasm as lockdowns inflict the greatest pain on people with low paid, insecure jobs,” said Andrei Rogobete, associate director of the CEME.
As a result of the economic restrictions bought by Covid-19 many households are eating into their savings as redundancies and unemployment have increased.
Those aged 18 – 35 are the worst affected group, with over three quarters of them owning no form of residential property, with or without a mortgage. In 1995 this figure was one third.
Low interest rates
CEME urges the government to end low interest rates and to introduce tax incentives to save. It also says more homes are needed and therefore planning permission should be relaxed in some areas.
In addition, the think tank calls for a diversification of private pension investment options for households and individuals, publicly recognising the importance of prudent, long-term saving, and the introduction of basic financial education in schools which would cover budgeting, pensions, credit and savings.
Lord Griffiths of Fforestfach, chairman of CEME and a former director of Margaret Thatcher’s Downing Street Policy Unit, said too many people are vulnerable to economic shocks.
“Current economic policy is dominated by short term thinking. One casualty is the serious lack of savings by a third of the population in order to cope with a rainy day,” he said.
Before the pandemic struck, households in the wealthiest tenth of households have more than 75 times the wealth of any of those in the bottom tenth. As absolute differences in wealth levels have increased substantially over the last 15 years, wealth differences represent many more years of income than in the past, CEME concluded.