Resolution Foundation – Living Standards Audit for 2020

The Resolution Foundation has published its Living Standards Audit for 2020, which includes vital information relating to the effects of Covid-19 and the response to the pandemic on UK household incomes and expenditures.

Living conditions prior to the pandemic

The report outlines the state of living conditions before the pandemic hit including the impact of cuts to welfare support since 2015 which have caused incomes for the lowest income households to fall consistently since then. In fact, incomes for the poorest households were no higher in 2018-19 than they were in 2001-02.

Although the headline measure of relative child poverty shows no change over the past two years, the proportion of children in households with incomes below 40 per cent of the median has increased to a record high of 13 per cent.

The report highlights the differences in income growth experienced by differing age groups during the decade leading up to 2020. For example, whereas incomes had increased by 25% for the typical 70 year old in the previous decade, income for a typical 30 year old had stagnated during the same period. This is particularly worrying in the broader context of the pandemic which has disproportionately affected working adults, particularly the young.

Support for family incomes during lockdown

The economic crisis caused by the pandemic is first and foremost a labour market crisis, with big implications for the incomes of working families. To date, family incomes have been hugely shielded by policy action, with the Coronavirus Job Retention Scheme (JRS) and the Self-Employment Income Support Scheme (SEISS) supporting the incomes of over 12 million people in the UK during the lockdown. The Office for Budget Responsibility estimates that £17 billion was spent on these schemes in May 2020 alone, with, for example, an average pay-out of £1,130 to furloughed employees in May. Without these interventions, the hit to incomes from the labour market shock would have been much larger across the income distribution.

Significant boost for low income households from benefit increases

In addition, £9 billion of increases to welfare payments has acted to significantly lift incomes towards the bottom of the distribution. Families who were not working before the crisis will not have experienced any fall in incomes and likely seen their incomes rise from the benefit increases, although one-in-four adults in the second poorest fifth of the income distribution reported increasing their use of consumer debt during the crisis.

The situation in May 2020 was remarkable due to both unprecedented economic circumstances and by the scale of the policy interventions. But circumstances and policy are both set to change.

What comes next?

The anticipated increase in unemployment, combined with the end of the JRS and SEISS over the rest of 2020-21 will mean large household income falls for many.

The workers most at risk are disproportionately already in lower-income households, with 23 per cent of workers in the poorest fifth of the household income distribution working in retail, hospitality or leisure.

The report predicts that Northern Ireland could be one of the worst affected regions, should the current support for private renters be reduced and other benefit support dramatically cut back in April 2021. This would come at a time when the OBR projects the unemployment rate to still be in double-digits. Such reductions in support could result in over 30 per cent of non-pensioner households losing over £1,000 according to their forecasting.