BRITAIN’S poorest families are bearing the brunt of the coronavirus crisis, and have been left £170 a month worse off on average.
At the same time, better-off households have built up savings faster than normal as they’ve spent less during lockdown, according to research.
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On average, the lowest-earning 20% of households have seen their bank balances shrink by £174 a month between March and September, compared to their finances in 2019.
It means they have fallen by roughly £1,220 in seven months, compared to what would’ve been expected in a normal year.
The dive in earnings is equivalent to about 14% of their pre-Covid incomes, according to research by the Institute for Fiscal Studies (IFS).
Meanwhile, the upper-middle earners have added an extra £364 a month to their bank balances.
How to cut your bills if you’re struggling
IF you’re struggling financially, you might be able to cut the cost of your bills to help you get out of the red.
Council tax: You can apply for a council tax reduction on the Gov.uk website but you’ll need to meet certain criteria. Your bill could be cut by as much as 100% if you’re on a low income or claim benefits.
Gas and electricity: Families can save several hundreds of pounds by switching from Standard Variable Tariffs (SVTs) to a better rate. Use a comparison site such as MoneySuperMarket or Energyhelpline to see what deals are available.
Water: Households might be able to save money by getting a water meter but it all depends on how much you’re using. To check if it’s financially worthwhile, use the Consumer Council for Water’s free water meter calculator.
Rent: If you have the space and your landlord or local authority says it’s ok to do so, you might want to consider getting a flatmate. Not only will you split the cost of the rent, but also the other bills.
Mortgage: If you get into debt with your mortgage payments, don’t wait for your lender to chase you. Work out what you can afford using the Citizens Advice budgeting tool so you can discuss your payment options moving forward with your mortgage provider. You can currently also apply for a payment holiday, but the deadline for this is on October 31.
This is due to a combination of stable incomes and reduced costs, meaning they have been able to save more than usual.
The IFS found that “forced saving” – declines in spending on goods and services shut down by lockdown – has been greater among high-income households.
The highest-earning 20% of households have reduced their spending on such goods by £195 per month, compared with £75 for the poorest fifth.
The poorest households tend to spend bigger percentages of their income on essentials and so often have less room to cut back.
The IFS research, funded by the Standard Life Foundation, used bank account data from budgeting app Money Dashboard.
Tom Waters, a senior research economist at IFS and an author of the report, said: “The inability to spend in many shut-down sectors of the economy has led to reduced spending across the income distribution.
“However, spending falls have been higher among higher income groups, and more than outweigh falls in income, with the opposite true for the poor.
“This means, on average, richer households have accumulated savings faster than normal, whereas poorer households have run them down or accumulated debts.”
Mubin Haq, chief executive of Standard Life Foundation, added: “Increasingly the pandemic is exacerbating existing inequalities.
“The poorest were the least able to cut back on spending, as much of their expenditure is on daily essentials.
“Coupled with income falls, they saw their bank balances reduce by nearly £200 a month, whilst those on higher incomes saw increases of nearly £400 a month.
He added: Finances for those on the lowest incomes are likely to deteriorate further, especially if the government does not extend the £20 a week uplift to Universal Credit beyond March next year.”
Yesterday, The Sun reported that Rishi Sunak is happy for the cash boost for Universal Credit claimants to stay in place beyond next April.
It came after a group of MPs last month urged the Chancellor to extend the support.