Drawing on the module material, discuss the different factors impacting on the changes in borrowing of different househo

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Drawing on the module material, discuss the different factors
impacting on the changes in borrowing of different household types
described in Extract 1.
Extract 1 – Nearly 9m people in UK increased their borrowing in
2020, says Office for National Statistics
Note 1: Unless stated otherwise all dates refer to
2020.
Note 2: Under furlough, employees who are temporarily
laid off received up to 80% of their normal salary (capped at
£2,500 per month).
Almost 9 million people, many of them among Britain’s poorest,
were forced to increase their borrowing last year to cope with the
pandemic, according to figures that illustrate the damaging effect
of the first two lockdowns on the finances of vulnerable
households.
The Office for National Statistics (ONS) found that
the proportion of this group borrowing £1,000 or more increased
from 35% to 45% since June, and its statisticians are warning of a
widening financial gap that is particularly affecting those on low
pay, the self-employed and parents with school-age children.
There has also been an impact on saving, with 38% of the adult
population saying in December they would be unable to save for the
year ahead, up from 32% in March.
The ONS figures show that self-employed workers were worst
affected by large drops in income, adding further pressure on
ministers to broaden the scope of support for the 2-3 million
people in self-employment who are not covered by the government’s
rescue schemes.
Self-employed people were more likely to report reduced working
hours and reduced income, even if they had received support from
the self-employment income support scheme (SEISS), the ONS
said.
The higher borrowing and lower saving was skewed towards poorer
households while better-off groups increased their saving and cut
their borrowing.
Gueorguie Vassilev, a researcher at the ONS, said a broad
cross-section of society took a financial hit in the first months
of the pandemic, either being furloughed or working fewer
hours. “What we are seeing now, though, is a widening financial gap
between households, where some people are relying on savings or
borrowing to make ends meet. Those hardest hit are people on low
pay, young people and parents of dependent children.”
Of those people who have not worked during the pandemic, either
because they were furloughed or for some other reason, those on the
highest incomes were most likely to be paid in full, according to
the ONS. More than half (52%) of those in the top fifth of earners
were paid in full, compared with only 28% of those in the lowest
fifth.
Adding to the growing evidence of income inequality brought on
by the pandemic, figures this week from UK Finance showed credit
card balances had fallen by 14.7% over the last year, mostly
following reductions by higher earners.
Parents with dependent children were almost twice as likely to
report a reduction in income in the period of the pandemic to
December compared with the general population. This gap gradually
narrowed throughout the year as schools reopened and is likely to
have widened again during the last few weeks of school
closures.
The ONS said parents with school-age children were about 50%
more likely to have difficulty meeting their usual expenses than
those without. They were also less able to afford either a holiday
or an unexpected but necessary expense than other adults.
The consultancy Oxford Economics said ONS figures covering the
first weeks of the latest lockdown showed that consumer spending
had fallen by more than it did in the November lockdown, but not as
much as in March.
Using data for the first time from the Bank of England that
tracks credit and debit card payments, the ONS said there was a 35%
fall in transactions in the week ending 14 January [2021] compared
with last February.
“All categories of consumer spending have weakened in the latest
lockdown, but the collapse in spending on ‘delayable’ goods, such
as clothes and furnishings, has been particularly marked …” the
consultancy said.