It is too soon to say with certainty what will be the overall impact of the crisis on measures of poverty or inequality in the UK. High-quality data on household incomes of the sort that are used to estimate income inequality and rates of relative poverty tend to be released with long lags.<\/p>\n\n\n\n
For example, the two most important estimates of the level and distribution of household living standards both tend to be published nine or more months after the financial year spanned by the data (these are the Department of Work and Pension\u2019s \u2018Households Below Average Income\u2019 publication, and the Office for National Statistics release on household income inequality). This means that official estimates of income poverty and inequality for the current financial year \u2013 2020\/21 \u2013 won\u2019t be available until January 2022 at the earliest.<\/p>\n\n\n\n
Because of these long lags, researchers have been developing a technique to estimate poverty and inequality at the current moment (see, for example,\u00a0Navicke et al, 2014<\/a>).<\/p>\n\n\n\n This is called \u2018nowcasting\u2019 and it uses real-time information on how the economy and the labour market are evolving, together with detailed data on the distribution of income in the past, to estimate what is happening to the distribution of income right now. The precise details can vary between studies, and the results are heavily dependent on the methods used and the assumptions made.<\/p>\n\n\n\n A crucial input to nowcasting studies is an assessment of the distributional impact of the crisis on the labour market. It is well established that the initial labour market hit affected young workers more than middle-aged workers; low earners more than high earners; black, Asian and minority ethnic workers more than white British workers; and those on atypical contracts more than salaried workers (Adams-Prassl et al, 2020<\/a>;\u00a0Gardiner and Slaughter, 2020<\/a>;\u00a0Gustaffson, 2020<\/a>; and\u00a0Benzeval et al, 2020<\/a>). On average, the labour market shock has hit lower earners much harder than the better off.<\/p>\n\n\n\n But there is a difference between having low earnings and being on a low income.\u00a0The first evidence of this came in a study showing that the incidence of job loss or reductions in earnings during lockdown was more common in the second and third quintiles of the working-age income distribution than in the bottom quintile (Brewer and Gardiner, 2020)<\/a>. This was because around half of adults in the bottom quintile were not in work before the pandemic began.<\/p>\n\n\n\n Similarly, there is evidence that the pattern of declines in earnings \u2013 which are greater for low-income households than for high-income households \u2013 are flatter when looking at all households, compared with when the analysis is restricted just to households that had some earnings pre-pandemic (Benzeval et al, 2020<\/a>, Table 5). The conclusion that \u2018falls in market income affect only those engaged with the market\u2019 is uncontroversial, but it is important when considering the impact on low-income households.<\/p>\n\n\n\n There have been several exercises to estimate the effects of the crisis on the distribution of income. All conclude \u2013 unsurprisingly \u2013 that the initial impact of the Spring 2020 lockdown, with nine million on furlough (the Coronavirus Job Retention Scheme, CJRS), a record rise in Universal Credit (UC) claimants and some large income falls among the self-employed, was to reduce household disposable incomes. For example, the\u00a0Treasury (2020)<\/a>\u00a0estimated an average fall of 8%, Brewer and Tasseva (2020)<\/a>\u00a0estimated an average fall of 8%, and\u00a0Bourquin et al (2020)<\/a>\u00a0estimated a fall of about 4% (although not all of these analyses are directly comparable).<\/p>\n\n\n\n More recent estimates indicate that incomes at the median remained almost unchanged in 2020\/21 compared to the previous year, reflecting the relative success of the furlough scheme in partly offsetting a rise in unemployment, as well as robust average earnings growth once the initial lockdown had eased (Brewer et al, 2021)<\/a>.<\/p>\n\n\n\n But all studies estimate that the initial fall in income was greater at the top of the income distribution than at the bottom (something also shown by Piyapromdee and Spittal, 2020<\/a>). Indeed, the emergency increase in social security benefits means that, on average, low-income households are better off financially than they were before the crisis began, as Figure 1 shows (with similar results in Figure 10 of Bourquin et al, 2020).<\/p>\n\n\n\nHow is the crisis affecting the labour market?<\/h3>\n\n\n\n
How is the crisis affecting the distribution of income?<\/h3>\n\n\n\n
Figure 1: Change in real (CPI-adjusted) average equivalised non-pensioner disposable household income, after housing costs, by income percentile: UK, 2019-20 to 2021-22<\/h4>\n\n\n