UK enjoys COVID recession wealth boom as savings rise by £200bn

Young group of shoppers as the coronavirus restrictions continue and the government is about to announce an extension to the original 'freedom day' planned for June, slowing the process of easing, more and more people begin to come to the city centre on 15th June 2021 in Birmingham, United Kingdom. After months of lockdown, the first signs that life will start to get back to normal continue, with more people enjoying the company of others in public, while uncertainty continues for a projected further month, which is being dubbed 'The final push'. (photo by Mike Kemp/In Pictures via Getty Images)
Total UK wealth rose by £900bn over the pandemic to around £16.5trn, leading to the first mid-recession wealth boom since the post-war mid-1940s. Photo: Mike Kemp/In Pictures via Getty Images

Most Brits got wealthier during the COVID-19 pandemic, new research shows, boosted by increased savings and surging house prices.

Brits saw the first increase in wealth levels during a recession in 70 years despite the biggest economic contraction in over 300 years, think tank the Resolution Foundation said.

Household debts excluding credit cards have fallen by around £10bn since February 2020, while average house prices rose 8% thanks to a stamp duty holiday. Total savings rose by £200bn ($276bn) as Brits reduced spending but saw incomes protected by furlough.

The Resolution Foundation report, which was published in partnership with the Standard Life Foundation, found total UK wealth rose by £900bn during the pandemic to around £16.5trn. It was the first mid-recession wealth boom since the post-war mid-1940s.

“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," Jack Leslie, senior economist at the Resolution Foundation, said.

Leslie called it an "unlikely wealth boom". Property prices — a key source of wealth in the UK — have declined by an average of 22% during the previous four recessions.

Watch: Should I pay off debt or save money during the coronavirus pandemic?

However, the study found widening wealth gaps. Middle- and high-wealth households managed to save more and benefit from rising house prices, but those with little or no wealth before the pandemic struggled.

The richest fifth of households were four times more likely to have increased savings during the crisis than the poorest fifth and over twice as likely to have reduced their debts.

Middle-wealth families experienced the biggest relative wealth increase of 9%, or £7,800, taking average total wealth to £80,500 per adult. The richest 10% of families experienced the biggest absolute wealth increase of more than £50,000.

By contrast, the poorest 30% of households saw an average wealth increase of just £86 per adult over the course of the pandemic.

"not all households have benefitted," said Leslie.

The Resolution Foundation said the gap between average household wealth and the wealthiest 10% had increased by £44,000 during the crisis. The gap between the average and the poorest 10% of households grew by £7,000.

Read more: Londoners are the only people in the UK dying in debt — of more than £200,000

“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," Leslie said.

The study said plans to cut Universal Credit (UC) by £20 a week in October will fall largely on households who haven’t seen their wealth increase. The Resolution Foundation said there was a strong case for a bigger role for wealth taxation when considering a sustainable funding model for social care.

Mubin Haq, chief executive at Standard Life Foundation, said: “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.”

Watch: How to save money on a low income