04What does this mean for the recovery?

Not all places will be able to rely on Covid-savings to bounce back

The fact that the pandemic winners and losers are unevenly distributed across the country has implications for the ability of different places to recover.

If the Bank of England predictions are correct, cities and large towns in the South of England will benefit the most from the champagne bottle effect of Covid-savings. Assuming that this is translated into savings in neighbourhoods that have seen large cuts in spending and small changes in income, and there are none for all other neighbourhoods, gives an idea of the magnitude of such Covid-savings (see Figure 13). On average, at least 10 per cent of pre-pandemic spending in places like Cambridge, Oxford and Reading is likely to have been translated into Covid-savings. This is five times more than in Hull, Blackpool and Burnley, where it is less than 2 per cent. Once again, reflecting the significant impact the pandemic has had on airport towns, Slough, Luton and Crawley are among places likely to have accumulated little or no Covid-savings.12

Figure 13: If Covid-savings fuel the recovery, it will mostly benefit cities and large towns in the South of England

Source: Beauclair, ONS 2020, Income estimates for small areas, England and Wales
Note: these figures are likely to underestimate the full amount of savings as the people who have cut their spending the most since the pandemic are the ones who used to spend the most beforehand.

If these savings are re-injected into the economy and this is done locally, it will create job opportunities and prosperity in these areas. People working in local services businesses in these cities and large towns, for instance restaurants, cafés and theatres, might have suffered financially during the pandemic because of the dramatic cut in spending in the most affluent neighbourhoods. However, they are now likely to benefit from it, meaning poorer people in these areas could enjoy the bounce-back too.

Cities and large towns in the North and Midlands risk experiencing a wave of problem debt

The same cannot be said in cities and large towns elsewhere in the country. In these places, fewer Covid-savings means there is less to be re-injected in the economy. Instead, they face an additional challenge as more people have maintained a similar level of spending throughout the pandemic despite being more likely to see a drop in income. This means it is likely there is less pent-up demand and less money to spend in the recovery. Fewer jobs will, therefore, be created in these places as a result of the bounce back, further exacerbating their pre-existing and pandemic debt challenges.

This is a worrying situation and the full extent is likely to be masked by a number of factors. While this research shows that people are likely to be struggling financially, this is yet to appear in more official measures of problem debt – compared with 2019, the number of CCJs issued in 2020 across the country dropped by 41 per cent. And while Ipswich, Belfast and Exeter experienced the sharpest drops in CCJs, no cities or large towns have seen an increase in claims (see Figure 14).

Figure 14: County Court Judgments have decreased everywhere over the past year

Source: The Registry Trust, County Court Judgements data for 2019 and 2020, ONS Population estimates 2019

This is down to a combination of reasons. Firstly, the fall in CCJs is partly due to delays in the system. According to official statistics published by the Ministry of Justice, small claims in particular are taking, on average, three months longer than before the pandemic — an average of 48.8 weeks between being issued and the claim going to trial. This is due to a backlog that has been further exacerbated by lockdown restrictions and an outdated IT system.13

Government support initiatives to help people dealing with debt during the pandemic have also prevented some individuals from finding themselves in an even worse situation. Mortgage holidays and the ban on rent evictions have protected people’s housing, while the Financial Conduct Authority issued guidance urging lenders to offer payment holidays and avoid enforcing mortgages and consumer credit repossessions in all but exceptional circumstances until the end of April 2021.14

On top of the measures to support people dealing with debt, Government initiatives aimed at protecting income throughout the pandemic have played a crucial role in preventing an even worse situation from materialising. The temporary £20 uplift in Universal Credit has relieved those at the bottom end of the income distribution from even stronger financial pressures, while the Job Retention Scheme and the Self-employment Income Support Scheme have protected most people from losing more than 20 per cent of their income.

Lastly, CCJs are one of the most extreme measures of debt, often used as a last resort. According to the Financial Lives Survey produced by the Financial Conduct Authority, while one in five people have used credit since the pandemic, approximately a third used their savings to cover their expenses, with the number going up to four in 10 for people at the bottom end of the labour market. In addition, 10 per cent have borrowed from family and friends.15 This would suggest that, even if not currently showing in official measures of debt, many are seeing their financial cushion reducing. With each month of continued hardship caused by the pandemic, they are more and more likely to be pushed into debt.

Clearly, as the economy reopens and Government support is phased out, more of these issues are likely to come to light. Both the Job Retention Scheme and the £20 Universal Credit uplift are expected to end after the summer.16 This could unveil a storm of problem debt, especially if the phase-out of support does not coincide with the economy firing on all cylinders.

As such, the timing and the way in which the Government approaches the next stage of our economic recovery will be equally important in determining how different people and places can bounce back.


  • 12 These figures are likely to be conservative estimates, as the people who are likely to have saved more during the pandemic used to spend more overall before the crisis hit.
  • 13 www.lawgazette.co.uk/news/small-claims-taking-almost-a-year-to-come-to-trial/5106699.article
  • 14 www.fca.org.uk/news/statements/update-mortgages-consumer-credit-banking-and-payments-during-coronavirus
  • 15 Financial Conduct Authority (2021), ‘Financial Lives Survey, 2020’, London: Financial Conduct Authority
  • 16 www.bbc.co.uk/news/uk-politics-56268229