Families hit by biggest shock to their income since the 1970s
HOUSEHOLDS across the country have had the biggest immediate income shock since the 1970s, a new report has found.
Analysis by the Resolution Foundation, published today, also reveals that around one million furloughed workers risk being out of employment entirely when the Job Retention Scheme ends in October.
The Living Standards Audit report reveals that typical household incomes for workingage people have fallen by 4.5 per cent since before the pandemic, despite government schemes helping to mitigate the damage.
It is the largest temporary fall in incomes since the oil crisis-induced inflation spikes of the mid-1970s.
During the financial crash in 2008, the largest annual fall in income was 2.7%.
Experts from the think-tank say that while the poorest households have been “massively” helped by schemes such as furlough and selfemployment income support, they are in for further shocks as the crisis continues.
Their report looks at household income levels just before the crisis happened, and how living standards may recover as the economy re-opens and government support is phased out.
It found that average households saw no growth in their income between the 2016/17 and 2018/19 financial years, with the poorest 10% of households seeing a fall in income.
It also states that on the eve of the coronavirus crisis, the poorest people had no higher income than they did in the early 2000s.
Adam Corlett, senior economist at the Resolution Foundation, said the report shows that jobs schemes
have been beneficial and ministers should remember this as they tackle the next phase of recovery.
He said: “Living standards across Britain stagnated in the years running up to the crisis, and fell for the poorest families. That stagnation has now given way to the biggest immediate income shock since the mid-1970s, as Britain’s economy – and much of its workforce – went into lockdown.
“The Government’s unprecedented policy response has played a critical role so far in protecting millions of households, and particularly the poorest, from the worst of the crisis.
But for many the threat of further income falls looms large.
“The phasing out of the Job Retention Scheme means much larger rises in unemployment are ahead of us, and these are likely to be concentrated among lower-income households. And withdrawing increases in Universal Credit next April, when this crisis will be far from over, will leave over six million households facing a further income loss of over £1,000.
“This initial phase of the crisis has shown us the importance of bold job support and a stronger social security safety net. The Government should keep both those lessons front of mind as it navigates the next phase of the crisis.”
The audit shows that the nature of the shock – centred on the jobs market – coupled with the Government’s policy response – which has focused on protecting employment and strengthening the social security safety net – has meant that the scale of the changes has been felt very differently across households.
A £9 billion social security boost has helped the poorest 20% of households from losing income during the first part of the crisis, with economists saying that without this action these people would have lost at least 8% of their incomes temporarily.
However low-earning couples who do not have children have been adversely affected by the crisis and have seen a decline in income of more than 8%. This group is less likely to be receiving Universal Credit and so has not benefited from the Government’s scheme.
The Foundation has warned that while the initial phase of the Covid crisis is over as lockdown conditions begin to ease, the threat of a further living standards squeeze is still on the horizon.
Poorer households, where around 25% of people are working in sectors such as retail, hospitality and leisure, are more likely to be affected by the second wave of unemployment which is expected to come when the Chancellor’s schemes ends on
October 31.
It also suggests that one in seven, or around one million people, who are currently on furlough will be out of work when the schemes finish.
It explains that moving from the furlough scheme, where a worker on £20,000 can currently expect to receive 80% of their take-home income, to Universal Credit, where they would receive just 29% will cause a huge income shock.
Economists have also warned that another income fall could come next year if the Government continues with the plan to withdraw the increase in Universal Credit. If it expired in April as planned, the report suggests it would see a fall in income of £1,000 for six million households.
The SNP and Labour have both previously argued for a continuation of the job-saving schemes, or introduction of sector-specific aid rather than a blanket payment model.
However Rishi Sunak said that he could not continue the schemes as it would be giving people “false hope” that there would still be a job to return to when they ended.
Alison Thewliss MP, the SNP’S shadow chancellor, said Mr Sunak should give further fiscal powers to Scotland to help the economy recover from the pandemic.
Kate Forbes, the Scottish Finance Secretary, SNP Westminster leader Ian Blackford and the First Minister have all called for the same thing in recent weeks, arguing devolved administrations need more powers to implement recovery packages more suited to their countries.
The Institute for Fiscal studies
The threat of further income falls looms large
previously said that it was no too late for Westminster to bring in temporary flexibility around borrowing for devolved governments, acknowledging that the delay in Scotland, Wales and Northern Ireland receiving funding from Westminster would hinder their economic recovery.
She said: “The threat to millions of jobs is growing and it is vital that the Tory government takes real and proper action if we are to avoid mass redundancies and a further hit to living standards in the weeks and months to come.
“The UK Government must deliver real investment to stem the tide, including a meaningful fiscal stimulus of at least £80bn, the extension of the furlough scheme into 2021, and the devolution of financial powers to ensure a tailored response in Scotland.
“This report adds to the evidence that there is a real danger that if the UK Chancellor cuts the furlough scheme prematurely and fails to deliver the ambitious scale of response required to stimulate the economy we will see thousands more unnecessary job losses in the second half of the year.”