Back in the early days of the pandemic – in the distant past of just over a year ago – there was a lot of speculation about the “shape” of the pandemic’s impact on the economy.
It could be a “V-shape” – a short sharp dip followed by an equally sharp recovery. “It’ll all be over by Christmas”, some said.
It could be a “J-shape” – a sharp dip followed by a longer recovery period, much like the 1919 flu pandemic.
Maybe it could even be “L-shaped” – where the economy basically doesn’t recover after the crash and stays at a lower level for many years afterwards.
New research from the Resolution Foundation is showing that the actual recovery is even worse than all of those potential scenarios. It’s starting to look like the recovery will be “K-shaped” with some people recovering quickly (or even directly benefiting from the pandemic to actively enrich themselves) and others being hammered by a deepening recession. The determining factor in how you personally have done throughout the pandemic is the income and wealth you had (or didn’t have) before it.
If you had a higher salary and plenty of disposable income, it’s likely that the enforced lockdowns caused you to spend less on things like shopping or eating out. It’s also likely that a higher salary means you are more likely to work a job that could be worked from home so you not only maintained your salary instead of being put on furlough or losing your job but you may have saved a fair bit of money not commuting to work. I must stress however that I’m speaking in the abstract here and individual circumstances will vary. In particular, just as not every job can be worked from home, not every home environment is suitable to be worked from. I certainly won’t understate the mental and emotional toll that lockdowns have had on people regardless of their circumstances.
The report shows that of the richest 20 per cent of people in the UK, 47 per cent of them had increased the amount of money they were able to save compared to before the pandemic and less than 10 per cent had reduced their rate of savings. Of the poorest 20 per cent of people, just 12 per cent had been able to increase their savings whilst 32 per cent had reduced their savings rate (and this group is by far the least likely to be saving anything at all).
The picture grows even more stark when it comes to wealth. The price of assets such as property has spiked since the first lockdown – a typical British house has increased in value by about 10 per cent – so anyone who owned property before the pandemic has seen their wealth increase. The richest 10 per cent of the population has seen their wealth increase by an average of £44,319. For the poorest third of the population, their wealth increased by an average of £86 per person and almost all of this will be concentrated at the top end of that distribution – many people in the UK have “negative wealth”, i.e. they owe more in debt than they would have if they sold everything they own.
This growing wealth gap will have major implications for those “left behind” as the wealth ladder gets pulled up ever further above them. For those who want to own their own home, if the deposit you need for a mortgage increases faster than you can save for it your chances of meeting that dream become ever more remote. This goes double if your landlord decides to capitalise on their wealth increases by bumping up your rent “to reflect the new value of the house”.
As we look towards the end of the pandemic and the recovery beyond we must ask – as I did last year – who is the economy for? The Scottish Government has led international headlines by claiming that it wants to shift the focus away from growth GDP to growth Wellbeing (though they still don’t seem to understand that a Wellbeing Economy seeks to increase wellbeing even if the result of that is a decrease in GDP).
To achieve that wellbeing economy and to prevent the pandemic creating an even wider increase in wealth inequality the Scottish Government must look at disrupting the causes of that inequality. House price inflation can be dampened by the scrapping of Council Tax in favour of a value-based Property Tax. This would immediately reduce the incentive to buy homes with the expectation of selling them later for a profit. It would also help to reduce the financial burden of folk who live in smaller, cheaper homes via a substantial tax cut compared to the relatively unfair Council Tax. As an added bonus, it would also start taxing land in a way that Scotland currently doesn’t, raising additional revenue from those who have been buying up vast swathes of Scotland to boost their “green” credentials.
Next, a system of effective rent controls linked to the quality of a home (not its “market value” as judged by speculators) would limit increases during inflation events like this and incentivise landlords to improve their houses rather than just sit on them and milk the tenants.
Finally, Scotland could simply outcompete the housing market entirely by building ultra-efficient, zero-carbon homes for social rent. Social rented housing was never designed to be a “backstop” for those who couldn’t afford the private sector but as a driver of wellbeing, inclusion and community as well as a guarantor of the quality and price in the private sector (why would you rent a cold, damp private flat at significantly more than you’d pay for a social house with almost no heating bills?).
This, of course, “only” deals with the issue of wealth inequality in housing and land but as this seems to be the main driver of the current inequality surge it would be a good – and long overdue – step. The Government often talks about its Wellbeing credentials and the need to “Build Back Better” but this new Resolution Foundation report shows that change in outcome can only be achieved by change in action. If we do nothing, “Better” will only arrive for some of us.