The economic impact of lockdown has seen the wealth divide grow wider
It has been an unquestionably hard time for many people across the world since March 2020, and only now are the realities beginning to hit home. Several industries, including the hospitality, events and aviation sectors, have been especially impacted, with Britain losing a tenth of all its restaurants during the pandemic leaving many without work, according to the BBC.
Now lockdown restrictions have been lifted, we should think of new solutions to the underlying financial inequalities that existed before the pandemic. Instead of continuing as we have been, we can change our priorities and start making more of a positive impact for our communities.
We should build back better for a fairer post-Covid world.
The growing wealth divide
Throughout the pandemic, Covid-19 has been described as the ‘Great Equaliser’ as regardless of background, race and gender, everyone can be at risk of contracting the virus. However, the economic impact of lockdown has seen the wealth divide grow even wider.
Recently, the Guardian reported that the poverty rate among UK working households is at the highest it has ever been at 17.4%, with the IPPR think tank blaming higher rents, as well as rising childcare costs and property prices. At a time when we’re facing the deepest recession in living memory, it is not surprising that it’s harder for people to get onto the property ladder than it was pre-pandemic.
At the other end of the spectrum, 1,000 of the richest people recouped their losses within the first nine months of the pandemic, according to Oxfam.
Earlier this year, the Land Registry shared that there had been an 8.9% year-on-year increase in house prices in April 2021, reaching a staggering £250,772 for the average property. Housing wealth has also risen to record levels, with households’ net wealth increasing to £11.4tn, which the Office for National Statistics attributes to the rise in house prices. People with housing wealth have seen that wealth increase significantly, whilst those without, particularly people in private rented accommodation, have seen rents increase even quicker than before after an initial drop during the pandemic according to the BBC.
This is backed up by reports from the Social Mobility Commission, which has shown that the majority of Britons believe that social inequality has increased during the pandemic, with 33% agreeing that it had risen by “a lot”. In response to the findings, Stephen Cooper, Interim Co-Chair of the Commission, said “The most disadvantaged – at home, school or work – should now be put centre stage in any recovery plan.”
In the same article from the Guardian, the Government claimed their multi-billion pound plan would help to “protect, support and create jobs” for the UK, generating new opportunities to get people back into work. Whatever the outcome from these plans, more needs to be done to provide robust financial support for people across the UK to prevent the divide from widening further.
A time of increasing hardship
The pandemic saw enormous support for the NHS and its workers, with many people across the UK demanding a pay rise for nurses. However, despite receiving a pay increase of 1% in March 2021, inflation rose by 1.5% leaving tens of thousands worse off according to the London Economic. Recently, the Government announced that they would offer NHS workers a 3% pay rise, however, this has once again led to backlash with workers feeling they deserve more.
Now we are in the second half of 2021, thousands more could be at risk of financial instability as the ending of the furlough scheme in September 2021 could see 850,000 jobs at risk according to research by the New Economics Foundation. The organisation states that the Government must reduce employer contribution over the summer to make the scheme more cost-effective for businesses and to extend it beyond September.
However, in June, the Government announced that they would be moving towards helping the economy to adapt, supporting people to “grab new opportunities, rather than relying on furlough indefinitely.” This suggests that hardship is a certainty for many and this economic-financial disparity is here to stay.
Building back better and differently
With many people across the UK left without financial security, banks across the UK have been increasing rates to meet the new demand for loans. Back in October 2020, the Financial Times reported that UK banks had raised their interest rates to stifle the booming home loan market during the pandemic. Also, in a sign of rising demand for cash for lending, some banks have begun to raise their saving rates almost a year since the Bank of England slashed base rate according to This is Money.
Attention is turning to increased inflation, as Ian Crowther, Senior Lecturer in Banking and Financial Markets at Sheffield Hallam University, predicted that there would be a rise in inflation throughout Spring 2021 which we’ve seen come through. The Bank of England expects this to settle down in the coming months, but whether that is a realistic or somewhat optimistic view remains to be seen. In one way those who have borrowed most (particularly government) might welcome some inflation as it can erode the value of debt over time.
As people struggle to survive in this climate and the Bank of England faces pressure to begin raising rates again according to the Evening Standard and those rate rises will doubtless begin to be passed on by banks which will see many worse off than ever before. Whilst savers may see some benefit from rising rates, banks are likely to be the biggest winners as they gain some ability to widen the gap as borrowing rates increase even more.
We need new solutions to help financially support people across the UK and the ending of lockdown gives us the chance to do things differently. The danger of the past year is to forget how things were before March 2020. Inequality was growing, as it has been through the previous “austerity years”. And during the pandemic, many people realised that others haven’t had it quite as good as they did. We all have a part to play in working together to address the growing wealth divide and at the newly named Great Western Credit Union (GWCU), our mission is to help our communities to build back better in the face of adversity.
We believe that post-Covid, we should be looking to solve the problems across our region that were there before the pandemic began. As the biggest credit union in the region, we are offering fair and affordable financial services to thousands of people across South West England, with greener, fairer and more ethical solutions to help our businesses, communities and people to thrive.
We welcome discussions on initiatives to support local communities and the development of more improved choices of low-cost financial services. Send us an email or call us on 0117 924 7309.
