Working age households have endured the biggest immediate shock to their incomes since the mid-1970s, according to a think tank.
The Resolution Foundation’s annual Living Standards Audit found that after a period of “stagnation” for living standards in the wake of the UK’s vote to leave the EU in 2016, the coronavirus crisis sparked an immediate 4.5% plunge in typical earnings.
It based the calculation on incomes in the run-up to the COVID-19 lockdown in March and compared them to figures in May – a time when the full hibernation for the economy remained largely intact.
The Foundation suggested that the incomes of the poorest fifth of households could have fallen by as much as 8% were it not for more generous provisions of £9bn in social security support.
The report also credited wider government action, including the Job Retention Scheme, for limiting the scale of the damage.
But it warned that the limited nature of the boost for Universal Credit and furlough scheme risked further income shocks in the months ahead as the country attempts to emerge from, what could yet be, the sharpest recession for 300 years.
Scenarios prepared by the Office for Budget Responsibility have also suggested the downturn, unlike the one which followed the financial crisis, will be particularly damaging for jobs – with more than three million unemployed by Christmas.
Official figures released last week, covering the three months to May, showed a negative picture for pay growth, with average weekly earnings down by 0.3% on an annual basis.
The Foundation’s findings point to the worst shock for incomes since the recession sparked by the 1973 oil crisis that saw inflation peak at 22.6%.
Its senior economist, Adam Corlett, said: “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.”
TUC general secretary, Frances O’Grady, used the report’s conclusions to renew her call for a greater financial commitment from ministers to save jobs.
A government spokesman said in response to the study: “This government has implemented an ambitious package of measures to support those affected by COVID-19, including the coronavirus job retention scheme and the self-employment income support scheme.
This is alongside making statutory sick pay available from day one.
“We know some people are struggling in these unprecedented times, which is why we have increased Universal Credit and Working Tax Credit by up to £1,040 a year, raised Local Housing Allowance rates and introduced mortgage holidays – a package of support amounting to £9.3bn this year.
“This builds on action already taken to support low-paid families such as by raising the living wage, increasing the tax-free allowance and uplifting benefits by inflation.”
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