Living standards
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Incomes

The Living Standards Audit 2021

Karl Handscomb
Karl Handscomb
Kathleen Henehan
Kathleen Henehan
Lalitha Try
Lalitha Try

In this report, our latest Living Standards Audit, we look back at how incomes were faring before the Covid-19 crisis; how they have endured during the pandemic; and what the pandemic will mean for future living standards. In particular, we closely analyse the labour market, looking at trends for workers affected by Covid-19 over the past 16 months, using our latest Covid-19 survey of 8,000 adults.

Moreover, the future will bring more living standards challenges, such as new trading arrangements and the path to net zero. These will start to have direct implications for household finances and government spending during this Parliament, as well as complicate the perennial challenge of how to improve the UK’s productivity record which is so key to long-term living standards improvements.

Key findings

  • Despite strong income growth in 2019-20, the big picture for incomes in the 2010s was one of very weak growth and rising child poverty to 31 per cent.
  • We now estimate median incomes grew by 1.5 per cent in 2020-21, reflecting higher earnings and a better recovery than previously expected.
  • We estimate that the number of people on furlough is now below 2 million, and for the first time in the crisis, more than half were partially furloughed.
  • Our survey shows that of those who were furloughed in February this year, 78 per cent were doing some form of work by May.
  • Older furloughed workers were less likely to have returned to work during the crisis than younger furloughed workers: with 26 per cent of workers aged 55+ workers that were furloughed in April 2020 were still on full furlough in May 2021.
  • As the overall furlough numbers fall, the majority (62 per cent) of those still fully furloughed have been out of work for at least six months.
  • Despite household incomes recovering in recent months, income and spending pressures throughout the crisis have led to increasing levels of debt for 13 per cent of individuals – rising to 21 per cent for those in the second lowest income quintile.

Recommendations

  • The Government should continue with the ending of the furlough scheme as planned – despite improvements in the labour market it should not bring forward the end of the furlough scheme.
  • Removing the £20 a week boost to Universal Credit and Working Tax Credit in October 2021 is taking an unnecessary risk with the economic recovery at a time when the ending of the furlough scheme is expected to lead to a rise in unemployment.
  • The Government should interpret its commitment to the State Pension triple lock as looking over the two-years of the Covid-19 pandemic to avoid an extra £4 billion being spent on State Pensions due to an unintentional large rachet effect.

Further reading

Unsung Britain
The changing economic circumstances of the poorer half of Britain
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Mike Brewer, Molly Broome, Nye Cominetti, Adam Corlett, Charlie McCurdy, Louise Murphy, Cara Pacitti, Hannah Slaughter, James Smith, Lalitha Try
Cold comfort
Mitigating the Winter Fuel Payment cut
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Alex Clegg, Jonathan Marshall
The Living Standards Outlook 2024
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Alex Clegg, Adam Corlett
Karl Handscomb
Karl Handscomb
Kathleen Henehan
Kathleen Henehan
Lalitha Try
Lalitha Try Economist