Emergency support helped to protect incomes and reduce poverty during the first year of the pandemic

The Chancellor’s emergency Covid support helped to protect household incomes and reduced both absolute and relative poverty during the first 12 months of the pandemic, the Resolution Foundation said today (Thursday) in the response to the DWP’s latest Households Below Average Income (HBAI) statistics for the financial year 2020-21.

The latest HBAI data, which covers the first year of the pandemic, shows that typical incomes after housing costs fell by around 1 per cent. This was a tough squeeze for households but still a remarkably small fall given that GDP per capita fell by 10 per cent, says the Foundation. Furthermore, incomes across the poorest quarter of households actually rose during this period.

Unprecedented policy support – including the £58 billion furlough and £20 billion self-employment income support schemes – will have helped to cushion the living standards hit to households, says the Foundation, while the £6 billion uplift to Universal Credit (UC) and Tax Credits, £1 billion boost to housing support, and £500 million boost to Council Tax Support – will have boosted incomes for poorer households.

As a result, relative poverty (after housing costs) fell from 22 to 20 per cent, and absolute poverty fell from 18 to 17 per cent.

However, the Foundation warns that the withdrawal of the £20 a week uplift to UC in October 2021 is likely to have increased poverty in the second year of the pandemic, despite the welcome reduction of the UC taper rate and increase in Work Allowances (which only benefit those in work).

And with the key benefits such as Universal Credit and the State Pension increasing far less than prices in the coming financial year – equivalent to an £11 billion real-terms cut in the value of support – the Foundation warns this could mean that the number of people living in absolute poverty rises by around 1.3 million (including 500,000 children) to reach 12.5 million.

The Foundation says that today’s figures show that the Chancellor made exactly the right call in providing unprecedented income support at the start of the pandemic, and the wrong call in failing to provide adequate income support during the current cost of living crisis.

Adam Corlett, Principal Economist at the Resolution Foundation, said:

“The Covid-19 pandemic delivered a hammer blow to the economy. But the Chancellor’s unprecedented and well-targeted emergency support helped to soften the living standards hit to families, and actually boosted the incomes of the most financially vulnerable. As a result, unemployment remained low and poverty actually fell.

“Sadly, lessons have not been learned from this policy success. The lack of targeted support in the recent Spring Statement means that households incomes are set to fall more sharply during the pandemic recovery than they did during the pandemic itself, and over a million extra people are set to fall below the poverty line. It is essential that more support is delivered to turn this bleak living standards outlook around.”

Notes to Editors

  • The latest DWP HBAI data is available here. This year’s statistics come with additional uncertainty, the Foundation notes, but the drop in poverty is in line with its expectations based on its own modelling.