Any further questions?

We often have more questions submitted for our event Q&A sessions than we’re able to answer. Where this is the case, we’ll endeavour to respond to a selection of the most interesting or most representative questions that went unanswered. The questions below were submitted to our panel for the event Weathering the storm: How wealth shapes the ability of families to face this economic crisis. George Bangham, co-author of the report Rainy Days, responds to these questions from our audience.

People on low incomes have taken payment holidays on borrowing. How can payment holidays be ended without creating additional burdens for family finances?

This is a very difficult problem. Our report has highlighted the extent to which families, particularly low-income families, have been taking on additional debt during the lockdown in order to help make ends meet. But it also showed how the burden of debt repayments was already high for some families, particularly those on lower incomes. We didn’t specifically analyse the issue of exit from payment holidays, but the point does reinforce the aims behind our conclusions for policymakers. In particular, the social security system needs to keep on supporting families’ incomes in the face of the downturn for as long as it takes. The alternatives that people have for making ends meet, such as high interest credit, are likely to be worse for their living standards in the long run.

Given the difficulty of reforming council tax, what are the chances of tax policy reforming in light of the report’s findings?

Council tax certainly has lots of critics, and very few defenders. It is regularly referred to as ‘broken’ or ‘a farce’, by the Resolution Foundation, among others. But as you say, that does not make it easy to replace – since any revaluation will create both winners and losers, and some of the latter are likely to be property owners who form an electorally-significant force. Despite these difficulties, there is evidence of public support for tax reform, and the economic upheaval of the coronavirus crisis is likely to heighten people’s awareness that big changes may be needed. There’s already talk of emergency changes, for example to VAT rates. We’ll be working on the tax policy response to the pandemic over the summer at RF, and we hope to contribute to this important debate as it rolls on.

Since higher income families are more likely to have increased their savings during the pandemic, should they be taxed more after the crisis?

The important point here is that any decision on this is informed by analysis of how families’ wealth holdings have changed during the pandemic. That is what our report tries to do, beside making the general point that policymakers need to pay attention to family balance sheets in addition to the more visible problems with jobs and pay. Our findings – that one-third of higher-income families are saving more than they did pre-crisis, and a quarter of families in the second income quintile are taking on additional debt – provide further evidence that the impact of the coronavirus crisis has been unevenly felt across the income distribution.

Has there been work looking at geographical differences in wealth inequality?

There’s some analysis of geographical wealth inequalities on pages 19-21 in our report, looking at how it varies between regions and nations in Great Britain. This shows that relative wealth inequality within regions and nations does not vary very much across Great Britain. However, comparing wealth between regions and nations tells a different story: over the past decade, three regions have increased their share of all wealth in Great Britain (London, the South East and South West), while others have not.

Is it really desirable for low-income families to save more, given that some people lose out for managing their finances prudently?

The ‘asset test’ for several working-age social security benefits can penalise people who save money in case they suffer an unanticipated income loss, as discussed on page 64 of the report. Families with more than £6,000 (excluding their home if they own that) have their entitlement reduced, and those with £16,000 won’t qualify for anything from major programmes like Universal Credit. There is some good reason for this test to exist, since people with savings are likely to have higher incomes in future. But in the short-term, particularly during the pandemic, it risks forcing more families to run down their savings in the face of income falls. In the report, however, we document a range of ways in which higher wealth can help boost families’ living standards. Even if the asset test reduces the incentive for some low-income households to save for a ‘rainy day’, then, there are many other good reasons to do so.