UK’s richest in line for £23bn coronavirus savings
2 Jun 2020
The richest 20% of UK households are set to save £23bn by mid-June as a result of reduced spending during lockdown, more than six times as much as the savings made by the poorest 20% of households, according to calculations from the New Policy Institute (NPI)
2 Jun 2020
The think tank says it looked at likely reductions in spending across a range of activities which have been severely restricted as a result of the Covid-19 pandemic, including holidays, restaurants, sport, travel, personal care and commuting, and apportioned the impact according to an earlier survey of household spending across income brackets.
Based on this, NPI estimates indicate that the top fifth of households (numbering 5.5m) will have reduced their spending by some £23bn if the lockdown were to last for three months (one quarter of the year). Those in the second highest fifth of households will have reduced their spending by around £14bn over one quarter.
In contrast, the lowest earning fifth of households will only have saved £3.5bn and the second lowest £6bn. The middle fifth are set to reduce spending by £10m, according to NPI.
Its report stated: ‘Not all of this unspent money will have been saved: spending on some items, like food to eat at home, will have gone up, some debts may have been paid off and a number of these households will have suffered a drop in earnings.
‘But overall, the evidence is clear: the amount which households near the top of the income distribution have saved since the lockdown began is huge.
‘By way of comparison: £23bn is equal to 4.5% of GDP over a quarter or 48% of what the government gets in over a quarter from basic, higher and additional rate income tax payers combined.’
The report’s authors argue their findings suggest that if taxes need to rise as a result of the government’s increased spending commitments during the coronavirus crisis, the burden should fall on those with high incomes.
However, they point out that putting the higher rate of income tax (payable by those earning more than £50,000) up by five pence to 45% and the additional rate (payable on income above £150,000) up by 10 pence (taking it to 55%) would bring the government about £1.5bn per quarter, meaning the majority of excess savings would remain untouched.
NPI’s report suggests a number of alternative options. These include a savings tax, which the think tank says would be hard to design and unlikely to find political support; a specific new lending product such as a Coronavirus Bond, issued by National Savings and supported by a marketing campaign appealing to people’s sense of social solidarity; or a product to attract household savings but with a specific purpose in mind, for example, to help capitalise a decarbonisation fund.