Questions and answers about coronavirus and the UK economy
Questions and answers about coronavirus and the UK economy

Have government measures been protecting the UK’s most vulnerable?

Several government measures have sought to protect family incomes in this time of crisis. But there is mounting evidence that the support provided to people most vulnerable to the economic impacts of the pandemic has not been enough to prevent rising hardship.

The economic effects of the pandemic are particularly damaging for the most vulnerable individuals and households. Two types of vulnerability stand out. First, there are people whose financial position before Covid-19 made them particularly vulnerable to hardship from income shocks. These include:

  • People living in destitution or deep poverty: One estimate indicates that 2.4 million people in the UK experienced destitution at some point in 2019. Destitution is defined as lacking two or more of six essential needs (shelter, food, heating, lighting, clothing and footwear, and basic toiletries) or living on an ‘extremely low’ income (Fitzpatrick et al, 2020). Another estimate – which defines ‘deep poverty’ as having an income below 50% of the poverty line (using a measure that is similar to the relative income poverty line, defined below) – indicates that 4.5 million people were living in deep poverty before the pandemic (Social Metrics Commission, 2020).
  • People living in poverty despite being in a working household (defined as having at least one person in work): One in eight workers and a quarter of children in working families were in poverty before the pandemic (Department for Work and Pensions, DWP, 2020).
  • People who went into the pandemic in debt or with no or few savings to draw down: Pre-pandemic, more than a third of the lowest-income households were net debtors compared with one in ten in the highest income decile, the top 10% of earners (Hood et al, 2018).

The second type of vulnerability is having characteristics associated with a higher chance of being in relative income poverty (having a net household income, measured after housing costs, of less than 60% of the median) before the pandemic. These people include:

  • Ethnic minorities: Pre-pandemic poverty rates exceeded 40% for Pakistani, Bangladeshi and black households.
  • People with disabilities, who were 50% more likely to be in poverty than people without disabilities pre-pandemic once the extra costs of living with a disability are taken into account. Over half of people living in destitution have a disability or chronic health problem.
  • Single parents, of whom more than 40% were in poverty pre-pandemic (all figures from Goulden, 2020) – see Figure 1.

Figure 1: Share of people in poverty (2018/2019)

Source: Authors' calculations using DWP Households Below Average Income dataset
Note: Analysis for ethnic minorities is pooled across 2016/17 to 2018/19 to create sufficient sample sizes. The poverty rate for people with disabilities takes into account the extra costs of living with a disability as in Goulden (2020).

How has the pandemic affected these vulnerable groups?

As noted in a previous Economics Observatory answer, high-quality data on household incomes, of the sort that is used to estimate income inequality and rates of relative poverty, tend to be released with long lags. For example, the two most important estimates of the level and distribution of household living standards in the UK are both typically published 11 months after the financial year spanned by the data. These are the DWP’s ‘Households Below Average Income’ (HBAI) publication, and the Office for National Statistics (ONS) release on household income inequality.

This means that official estimates of income poverty and inequality for the current financial year, 2020/21, won’t be available until March 2022. For this reason, the evidence we have so far is based on data sources that might not be fully representative of the population or which use survey instruments that are less detailed than those that underpin the official HBAI report.

The main way in which households have felt the economic effects of the pandemic is through changes in employment. The unequal impact across different sectors – with low-wage service sectors such as hospitality, non-food retail and leisure most affected by lockdowns and social distancing – means that people in in-work poverty are particularly likely to have had their work affected.

Two separate estimates of the kinds of working-age households that have seen their earnings fall show that the highest incidence is in the second-poorest (pre-pandemic) income group (quintile), corresponding to those below and slightly above the poverty line (see Handscomb and Judge, 2020, and Bourquin et al, 2020) – see Figure 2.

Figure 2: Change in household income during re-opening (July-September) compared to February 2020, by pre-pandemic family income quintile: UK, 17-22 September 2020

Source: Resolution Foundation (analysis of YouGov, UK Adults Age 18 to 65 and The Coronavirus (Covid-19) – September wave)
Note: Base = 3,128: all adults aged 18-65 with valid income data (apart from the ‘all’ category where the base is 6,061 – the fact that adults without valid income data are included in the all category explains why there is a higher incidence of unknown income changes here than across quintiles). Family income distribution based on equivalised, disposable benefit unit incomes among 18-65-year-old adults, excluding families containing retired adults or nonworking adult students (see Annex 1 of RF report for more details).

Only a relatively small share of people on very low incomes are in work. One estimate indicates that the majority (54%) of those in the bottom quintile of the pre-pandemic working-age distribution of family income were not in work (Handscomb and Judge, 2020). While only 14% of people experiencing destitution before the pandemic were in paid work, this figure has risen in recent years (Fitzpatrick et al, (2020).

But among those that were in work, they are very likely to have had their work affected. A survey by the Social Metrics Commission (2020) found that ‘nearly two in three (65%) of those employed prior to the Covid-19 crisis who were in deep poverty have experienced some kind of negative labour change’ – including being furloughed, having reduced hours or earnings or having lost their job. This compares with 35% of those on incomes more than 20% above the poverty line – see Figure 3.

Figure 3: Employment and pay impacts for those employed prior to the Covid-19 crisis, by poverty status

Source: Social Metrics Commission analysis of YouGov
Note: Due to data constraints, the analysis uses 60% of median equivalised household (before housing costs) income as the poverty line. 'Some negative impact' refers to those who have had their hours or earnings reduced and / or been furloughed or lost their job. Base: all employed prior to Covid-19 crisis (39,621 across all categories).

There is also evidence that some of the groups with the highest poverty rates are the most likely to have had their jobs affected. For example, employment rates have fallen more for people with disabilities – by 1.9 percentage points – than for non-disabled people – down 1.1 percentage points (Institute for Employment Studies, 2020).

Certain ethnic minorities are more likely to work in the close contact service sectors that have been most affected by lockdown. One study finds that Bangladeshi and Pakistani workers had around double the risk of losing their job during the pandemic compared with white workers (Sandher and Innes, 2020). Another study finds that workers from black and minority ethnic groups were more likely to have lost their job, seen their earnings cut or been furloughed than white workers (Brewer et al, 2020).

Analysis suggests that single parents saw the greatest average falls in working hours and nearly one in ten (9%) lost their jobs during the first lockdown (Dromey et al, 2020).

There is also evidence that the pandemic, and lockdown in particular, have made it more expensive to live on a low income, especially for families with children. Having children at home more has meant higher spending on food, energy and ways to entertain or distract children when so many outdoor leisure activities have been curtailed.

Remote schooling is very expensive for those families that have had to buy a laptop or arrange for broadband access. In addition, the cost of feeding a family on a low income has risen during the pandemic. A reduction in promotions, difficulties obtaining particular items and the need to avoid the risk of infection have forced some families to use more expensive food stores that are closer to home or will deliver. And restrictions on household mixing and non-essential trips have constrained family and community support, and vital free services such as libraries have often been closed over the last year.

Evidence shows that over a third of low-income families with children have increased their spending during 2020, with only 18% seeing lower spending by August and September. By contrast, among high-income families without children, only 13% had increased their spending, and 40% had reduced it even after the economy had opened up in August and September. By September 2020, 39% of families with children in the lowest income quintile were seeing their finances squeezed (with spending rising by more, or falling by less, than income) compared with their pre-pandemic situation.

How effective have the government support measures been?

The UK government’s strategy for supporting family incomes has rested on the Coronavirus Job Retention Scheme (CJRS) for those employees whose work has disappeared but who are not made redundant; the Self-Employment Income Support Scheme (SEISS) for those self-employed who qualify; and the social security system (mainly Universal Credit, UC) for everyone else.

The CJRS, or furlough scheme, has been very effective at keeping people without work or with reduced work due to Covid-19 in employment. The unemployment rate rose only 1.1 percentage points to 5.0% in November (ONS, 2020). The furlough scheme has provided well-targeted protection to low-income workers.

Although furloughed workers receive at least 80% of their earnings through the scheme, the combination of this and UC means that most low-paid earners can see an income replacement rate of above 90% of their original pay while furloughed (Brewer and Handscomb, 2020).

Nevertheless, the rise in unemployment that we have seen is likely to have been concentrated among workers already on low incomes. People on insecure contracts – which are most prevalent among low-paid workers and in sectors with high poverty rates (McDonald and Sandor, 2020) – were most likely to have lost their jobs (Adams-Prassl et al, 2020).

Those losing their jobs have also suffered much larger falls in their income than those furloughed as UC alone covers much less of an individual’s lost earnings (Handscomb and Judge, 2020; Delestre et al, 2020; Brewer and Handscomb, 2020).

In addition, the government announced major changes to the social security system estimated to cost £8.3 billion in 2020/21. It increased the value of UC and working tax credits by £20 a week, and reversed eight years of cuts to local housing allowance (LHA). This was a very sensible move, as claims for UC surged when the crisis began. The number of excess new starts on UC in the first four weeks of the crisis was equivalent to the number of excess Jobseeker’s Allowance (JSA) claims over the first nine months of the previous recession (after the 2007-09 financial crisis).

Despite this surge, over 90% of payments due were paid in full and on time, and the vast majority of advance payments are paid within 72 hours. One report showed that 74% of new UC claimants reported that they were satisfied with the way that the DWP handled their claim.

These changes mean that many people on UC but not in work before the pandemic have actually seen their incomes rise (and this lies behind the estimates that income at the bottom of the income distribution could be higher in 2020/21 than in 2019/20). For example, this support was acknowledged by many people experiencing destitution relying on UC ‘to be a considerable help… enabling them to afford food, electricity and other essentials’ (Fitzpatrick et al, 2020).

But this temporary uplift should be set in the context of reduced generosity of the social security system in the last ten years, which had led to a rise in deep poverty (Social Metrics Commission, 2020).

Where has support for the most vulnerable been missing?

There are some notable things that the government hasn’t done to support the most vulnerable during the pandemic. The government excluded ‘legacy benefits’ – Employment and Support Allowance (ESA), JSA and Income Support – from the £20 uplift. Most of these claimants are sick or disabled people and carers.

There has been no change in the benefit cap, which means that households already affected by the cap have seen no gain from the increases in UC and LHA. The number of families affected by the cap doubled between February and May 2020 (Porter, 2020). There has also been no change in the five-week wait for the first UC payment, which often leads to new claimants taking on debt until they get their first payment.

People most vulnerable to income shocks have also been most likely to slip through the gaps in support that has been available (Treasury Select Committee, 2020). Qualitative studies of people experiencing destitution despite being in work suggest that very few had been able to access job support – either the CJRS or SEISS – as they tend to be in the most precarious forms of work (Fitzpatrick et al, 2020).

People who are newly self-employed or who earn less than half of their income from self-employment are also excluded from SEISS, which means that around 1.5 million mostly low-earning workers have missed out on this support (Cribb et al, 2021).

What are the signs of rising hardship?

There is mounting evidence that the support provided to people most vulnerable to the economic impacts of the pandemic has not been enough to prevent rising hardship. Although the pandemic has increased levels of saving overall (the Office for Budget Responsibility expects the household savings ratio in 2020 to be 19.9%, compared with 6.5% in 2019), many low-income families have taken on new debt or borrowed from family and friends to mitigate declines in earnings (Crossley et al, 2020; Handscomb and Judge, 2020; Davenport et al, 2020).

Recent polling has found that the share of renters in rent arrears has increased from 5% to 8% since the start of the pandemic, with the share behind on household bills also rising (Earwaker et al, 2020). Another poll found that 5.6 million people have fallen into arrears or borrowed to make ends meet since the start of the pandemic (Stepchange, 2020).

Of course, it is not only the most vulnerable that can fall into debt, but low-income households are by far the most likely to experience ‘problem debt’. This is defined as spending a quarter of net income on paying back debts or missing two consecutive debt repayments (Hood et al, 2018). Problem debt is very common among people experiencing destitution (Fitzpatrick et al, 2020).

Finally, a study shows that in September 2020, close to one in three of those in households that had reduced income since February were unable to afford at least three out of six basic items, such as fresh fruit and vegetables every day, or the ability to turn their heating on when required. This compares with one in ten (10%) of those who had not had a negative income shock (Handscomb and Judge, 2020).

In all, the government responded to the pandemic by putting in place some bold measures to protect people most vulnerable to the economic effects. Gaps in this support, combined with rising costs of living on a low income throughout the pandemic, mean that this hasn’t been enough to prevent rising hardship.

Questions remain about how well the vulnerable will be supported through the second year of the crisis, and whether the benefits of the economic recovery will be widely shared.

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Authors: Mike Brewer and Dave Innes
Photo by De An Sun for Unsplash
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