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Coronavirus: Poorest forced to borrow more to get through crisis

Embargoed to 0001 Wednesday June 10 Undated file photo of money. People have gone 44 days on average without using cash during the coronavirus crisis, a survey suggests.
Britain's poorest households have increased their borrowing. Photo: PA

Poorer households are twice as likely as high-income households to have turned to borrowing to tide them through the coronavirus crisis, new figures suggest.

A study for the Resolution Foundation highlights the precarious position of millions of people’s finances as the economic fallout of the pandemic deepens.

It found in a survey that the average worker in a shut-down sector of the economy had just £1,900 in savings in May, compared with £4,700 of savings among those able to keep working from home.

READ MORE: UK workers suffer steepest drop in pay in decades

The think tank also compared the experiences of the second poorest fifth of UK households with the highest-income households.

The analysis found one in four poorer families, couples or individuals had increased their borrowing, often on credit cards with high interest rates. Only one in eight high-earning households had similarly taken on more debt.

Similarly, only one in six poorer households had begun to save more during lockdown, whereas one in three households with high earnings had increased their savings as their spending declined.

The think tank argued the contrasts underscored the large and widening wealth gap in Britain going into the crisis. Its report highlighted a £1.4m ($1.7m) gap between the wealth of the poorest and richest tenth of households in 2016-18, up by £370,000 in real terms on a decade earlier.

READ MORE: UK employers have slashed 600,000 jobs since March

“Pre-coronavirus Britain was marked by soaring wealth and damaging wealth gaps between households. These wealth divides have been exposed by the crisis,” said George Bangham, an economist at the Resolution Foundation.

He called for the government to boost Britain’s safety net by increasing universal credit, and to support lower- and middle-income households to boost their savings.