00Executive summary

The Bank of England is predicting a quick bounce back from the pandemic, with UK households having accumulated £150 billion of ‘Covid-savings’ that will now be re-injected into the economy, fuelling the recovery.1

But these savings are not distributed evenly; they are mostly concentrated among affluent neighbourhoods in the South of England.

People have had dramatically different experiences during the pandemic. For those living in richer areas (for whom ‘essentials’ make up a smaller share of their spend), the guidance to work from home, alongside the closure of non-essential shops and services, has indirectly enabled them to reduce more of their spending. For every £1 decrease in less affluent areas, there has been a £12 cut in richer ones.

But the closure of non-essential shops and services has affected jobs and incomes. Communities where the average net household income is below £28,300 a year, and where more people are likely to live in social housing, are twice as likely to experience a fall in the amount of money coming in.

So, while the first group is likely to have accumulated savings, the second is more likely to be struggling financially.

These trends have affected the UK’s largest cities and towns in three ways:

  1. In every urban area, there are pockets of winners and losers from the pandemic: In Crawley, Luton and Slough, people from both poorer and richer neighbourhoods have been hit hard. Elsewhere, those in more affluent urban areas have experienced the pandemic similarly, regardless of where they live. People in less affluent areas have also been similarly affected up and down the country. Winners and losers often live side by side, even in the same city. This is particularly visible in London – almost 50 per cent of residents were able to work from home and reduce their spending, but the city has seen one of the largest rises in people claiming unemployment-related benefits.
  2. Covid-savings have mostly accumulated in cities and large towns in the South of England: Rich and poor neighbourhoods are unevenly distributed across the country, so the effects of the crisis have further exacerbated the North/South divide. In Exeter, Aldershot and Reading, for example, at least two-thirds of neighbourhoods are likely to have been saving throughout the pandemic. However, this is true for fewer than 25 per cent of neighbourhoods in Hull, Blackpool and Barnsley.
  3. In cities and large towns in the North and Midlands, including so-called ‘red wall’ constituencies, more people are likely to have been pushed into debt: While fewer than 3 per cent of neighbourhoods in Exeter, Southend and Reading may have been pushed into debt, in places such as Liverpool, Hull and Bradford, this is the case for almost one in two neighbourhoods. This is because, in these places, the pandemic has had less effect on spending despite people being far more likely to experience a drop in income.

These differences matter as they are likely to affect the speed at which different places can bounce back. If Covid-savings do lead to a spending spree, it will be mostly cities and large towns in the South of England that are likely to benefit. At least 10 per cent of spending before the pandemic has translated into Covid-savings in places like Reading, Exeter and Cambridge. This will now help fuel the recovery, indirectly creating job opportunities and income for people who have been hit hard in these areas.

But that is not the case elsewhere in the country. Urban areas in the North and Midlands not only have less to bounce back to, they face the additional challenge of increased levels of indebtedness.

Government support initiatives, along with family networks and delays in the Court system, have helped cushion people from the worst effects of the debt crisis. However, the reopening of the economy and the consequent phase-out of these initiatives are likely to lead to bills and debts piling up.

The Government’s task as the UK begins its economic recovery is to avoid this and help people who have been significantly affected by the past 15 months to stay afloat. It should carefully time how, and when, the current support is phased out, and introduce new measures. In particular, it should focus on four main areas:

  1. Supporting people with their immediate spending needs: This includes extending existing support until at least the end of the year so the economy can readjust, and introducing further measures for families, such as free school meals throughout the summer.
  2. Supporting people to repay their debt: The Government should create a relief scheme specifically for those who have incurred Covid-related debt, and mandate that people’s credit scores are not affected by minor debt accrued during the pandemic.
  3. Protecting income: An immediate priority for the Government should be to make the £20 Universal Credit uplift permanent. It should support a gradual phase-out of the Job Retention Scheme by continuing to protect sectors while they are unable to operate at full capacity. Alongside these more pressing issues, the Government should look at reforming the UK welfare system overall, bringing it in line with other European states.
  4. Level up for the long term: The first three sets of recommendations will help people with their immediate challenges. However, the Government needs to focus on creating more jobs and opportunities in cities and large towns in the North and Midlands to avoid people falling into debt in the first place, and to truly level up. As the economy reopens, this should be done by encouraging people back into city centres and introducing measures that help individuals to upskill and retrain, so they can re-enter the labour market. The Government should then use the Levelling Up White Paper, which is expected later this year, to introduce a package of measures to improve productivity in cities and large towns that are currently underperforming.


  • 1 www.bloomberg.com/news/articles/2021-03-24/boe-s-chief-economist-says-rip-roaring-recovery-is-possible