The Covid-19 crisis has been marked by rising levels of wealth – the first time this has happened during a recession in 70 years – and widening wealth gaps as middle- and high-wealth households have amassed savings and benefitted from rising house prices far more than those with little or no wealth to begin with, according to new Resolution Foundation research published today (Monday).
The report (Wealth) Gap Year – published in partnership with the Standard Life Foundation – examines how the pandemic has affected both the level and distribution of household wealth across Britain – from savings and debts, to property and other asset prices.
The report notes that despite the UK experiencing the biggest economic contraction in over three centuries last year, levels of household wealth have increased rapidly, in stark contrast to the falls seen in past recessions.
Total household savings are £200bn higher than they were pre-crisis, household debts (excluding credit cards) have fallen by around £10bn, and house prices – which have fallen by an average of 22 per cent over the previous four recessions – have risen by 8 per cent since February 2020.
This has led to led to the first mid-recession wealth boom since the mid-1940s (when the unique post-war circumstances saw the economy contract while house prices rose rapidly), with total UK wealth rising by £900 billion over the pandemic to around £16.5 trillion.
However, not all households have experienced this Covid-crisis wealth boom. The richest fifth of households are four times as likely to have increased their savings during the crisis as the poorest fifth of households (47 per cent vs. 12 per cent), and 2.5 times as likely to have reduced their debts. This reflects pandemic-induced spending reductions being concentrated among those on higher incomes, says the Foundation.
This stark distributional divide in how households’ savings and debts have been affected by the pandemic is reinforced by the impact of increases in asset prices.
The Audit shows that rapid house price growth during the pandemic has primarily benefitted middle-wealth households (where property accounts for the largest share of total wealth) and high-wealth households (who own the largest amount of property wealth).
As a result, middle-wealth families have experienced the biggest relative wealth increase of 9 per cent (up £7,800, taking their average total wealth to £80,500 per adult), while the richest 10 per cent of families have experienced the biggest absolute wealth increase of over £50,000 over the past year (taking their total wealth to £1.4 million per adult).
In contrast, the poorest 30 per cent of households have seen an average wealth increase of just £86 per adult over the course of the pandemic.
Wealth changes during the pandemic mark a continuation of pre-crisis trends for rising household wealth and wealth gaps, says the Foundation.
The gap between the average and the wealthiest 10 per cent of households has increased by £44,000 during the crisis (following a £350,000 increase between 2006-08 and 2016-18), while the gap between the average and the poorest tenth of households has also grown by £7,000 during the crisis (a bigger increase than seen during the whole 2006-08 and 2016-18 decade).
The Foundation says the very uneven impact of this wealth surge will be a lasting legacy of this crisis and should be borne in mind by policy makers taking key decisions in the autumn.
It notes that plans to cut Universal Credit by £20 a week in October will fall largely on households who haven’t seen their wealth increase, while there remains a strong case for a bigger role for wealth taxation when considering a sustainable funding model for social care.
Jack Leslie, Senior Economist at the Resolution Foundation, said:
“The Covid-19 crisis has seen a highly unusual combination of a sharp reduction in economic activity, and a sharp increase in household wealth. Many families have been forced to save rather than spend during lockdowns, while house prices have continued to soar even while working hours have plummeted.
“But not all households have benefitted from this unlikely wealth boom. The poorest households are more likely to have run down rather than increased their savings, and haven’t shared in Britain’s house price bonanza as they’re less likely to own a home in the first place.
“As a result, the rising wealth and widening wealth gaps that marked pre-pandemic Britain have been turbo-charged by the crisis. With policy makers facing many tough decisions in the Autumn – from protecting households as unemployment rises to paying for a decent system of social care – they can no longer afford to ignore the dominant role wealth is playing in 21st Century Britain.”
Mubin Haq, Chief Executive at Standard Life Foundation, said:
“Economic downturns don’t usually result in windfalls, but due to the unique nature of this one, many have seen big rises in their wealth during the pandemic. The richest tenth have seen their wealth increase by more than five hundred times what the poorest third gained.
“The rise in wealth for those at the bottom has been paltry even taking into account the £20 a week increase in Universal Credit payments to those on the lowest incomes. Wednesday’s announcement of the cut to UC risks further widening the wealth divide which ballooned during the pandemic.”