news

Our analysis shows that the UK Government’s investment in Universal Credit has provided vital support to protect many families from the economic fallout of the pandemic. Without this, many more families would be in poverty than is currently the case.

UK Government benefit changes protecting 650,000 people from poverty

A new report by the Legatum Institute provides the first estimates of poverty in Quarter 1, 2021 using the Social Metrics Commission’s approach to measuring poverty, which the Government is currently developing as an Experimental Statistic. It shows that, although the number of people in poverty has increased, almost 650,000 have been protected by the £20 a week increase to Universal Credit and other benefits.

Official data to assess poverty during the Covid-19 period will first become available in 2022. This is obviously too late for decision makers who are seeking to ensure that the most vulnerable are shielded from the worst impacts of the pandemic. To tackle this, the Institute’s report summarises results from a set of ‘nowcasting’ scenarios based on the most up-to-date data on the economic impacts of Covid-19 and how they have been distributed across different families.

It estimates that:

  • Compared to a situation where the Covid-19 pandemic and associated economic fallout had not hit the UK, there are now 320,000 more people in poverty.
  • The majority of the rise in poverty comes amongst working-age families, particularly those that have experienced job losses in the economic fallout from the pandemic.
  • However, changes that the Government has introduced to benefits, including an increase of £20 a week to Universal Credit and Working Tax Credits, and the suspension of the Minimum Income Floor (which applies to self-employed people claiming Universal Credit), have insulated many families from the economic impacts of Covid-19.
  • Together, these changes have prevented a further 650,000 people from moving into poverty; meaning that the increase in poverty could have been three times as high if the Government had not invested in Universal Credit.
  • The investment made in Universal Credit has also meant that 270,000 fewer people are living in families in deep poverty, that is living more than 25% below the poverty line, compared to the situation prior to the pandemic.

 Table: Projections of poverty in Quarter 1, 2021, with and without changes to benefits

Individuals in poverty (millions)Change in poverty compared to no-Covid-19 scenarioPoverty rate (%)Change in poverty rate compared to no-Covid-19 scenario (percentage points)
With changes to benefits14.8m+320,000 people23%+0.5 ppts
Without changes to benefits 15.5m+970,000 people24%+1.5 ppts

Source: Legatum Institute, Family Resources Survey and HBAI dataset (1998/99 – 2018/19), IPPR tax and benefit model.

Notes: Quarter 1, 2021 – uses a central unemployment scenario (5.5%).

The report also shows that increases in poverty have not been experienced similarly across the population, with the economic impacts of the Covid-19 crisis affecting young workers, those in relatively low-paying employment, and those working in the hospitality and retail sectors disproportionately. Moreover:

  • The increases to benefits have meant that some groups have seen a fall in poverty. In particular, poverty amongst people living in lone-parent families has reduced by 140,000 people and for those living in workless families by 140,000 people.
  • This has meant that impacts on poverty amongst children have been more muted than might have been expected, although there has been an overall rise of 40,000 children living in families in poverty.

Baroness Philippa Stroud, CEO of the Legatum Institute said:

“Our analysis shows that the Government’s investment in Universal Credit has provided vital support to protect many families from the economic fallout of the pandemic. Without this, many more families would be in poverty than is currently the case.

“Since our previous report in November 2020, economic data has become more positive about the UK economy and labour market. This means that our estimates of poverty in the first quarter of 2021 are lower than those we estimated for Winter 2020. However, our latest analysis supports our previous finding that, in all scenarios, more than 600,000 people are being protected from poverty by Government action on Universal Credit – we estimate 650,000 are being protected in Quarter 1 2021, only slightly below the headline figure of 700,000 from our estimates for Winter 2020.

“To ensure this continues as we begin to adapt to life after, or living with, Covid-19, there is a clear need for this investment to remain in place as part of a comprehensive anti-poverty strategy. This must be placed at the heart of the UK’s Covid-recovery response.

“That is why we are supporting the Office for Statistics Regulation’s call for the Government to urgently push ahead with its development of Experimental Poverty Statistics based on the Social Metrics Commission’s work. These measures shine a light on the drivers of poverty and the range of tools that Government has to tackle it; from boosting incomes and promoting work to tackling mental health and supporting families.”

 [ENDS]

For more information or to receive a copy of the report, please contact:

Freddy Arrowsmith, Media & Communications Manager: fredericka.arrowsmith@li.com

Notes to editors:

The Office for Statistics Regulation recently published its review of Poverty Statistics in the UK (see here: https://osr.statisticsauthority.gov.uk/publication/review-of-income-based-poverty-statistics/pages/7/ ). It concluded that “We consider that DWP and ONS should assess how the SMC recommendations can be implemented in their own work to enhance the public value of their statistics.”

The report presents results from a ‘nowcasting’ exercise. This uses the most up-to-date data on employment, earnings and Government policy available (including the Coronavirus Job Retention Scheme (furlough scheme), and its likely distribution amongst different groups of employees), along with a range of assumptions to model the likely level and distribution of poverty in Quarter 1, 2021. Tax and benefit changes were modelled using the IPPR’s Tax and Benefit Model. Given the uncertainties present in current estimates of labour market activity,[i] we have used a range of different scenarios.

The results presented here reflect our central unemployment scenario. This assumes:

  • Unemployment rate of 5.5% (based Labour Force Survey data from January – March 2021 and HMRC PAYE real-time data from February 2021)[ii] and 4.9m people furloughed,[iii] with the impacts of these distributed as we have observed in the SMC / YouGov poll of 80,000 people between March and May 2020.[iv] Two million self-employed people are assumed to have taken on the Self-Employed Income Support Scheme.[v]

More detail on the assumptions used in this, and our other scenarios, along with full results for each scenario can be found in the main body of the report, which is available on the website: https://li.com/.

[i] See, for example, https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/coronavirusanditsimpactonthelabourforcesurvey/2020-10-13 and https://www.resolutionfoundation.org/publications/the-truth-will-out/ . Accessed 15/11/20.

[ii] ONS, (2021), see Earnings and employment from Pay As You Earn Real Time Information, UK: March 2021 – Office for National Statistics (ons.gov.uk) Accessed 23/06/21.

[iii] HMRC, (2021), see HMRC coronavirus (COVID-19) statistics – GOV.UK (www.gov.uk) Accessed 23/06/21.

[iv] All figures from polling, unless otherwise stated, are from YouGov Plc data, analysed by the Social Metrics Commission. Total sample size was 84,520 adults. Fieldwork was undertaken between 25th March and 18th May 2020. The surveys were carried out online. The figures have been weighted and are representative of all GB adults (aged 18+). After accounting for missing data on income, household size and economic status, all results use answers from 77,668 adults. Social Metrics Commission, (2020), Poverty and Covid-19. See https://socialmetricscommission.org.uk/poverty-and-covid-2/ Accessed 15/11/20.

[v] HMRC, (2021), see https://www.gov.uk/government/collections/hmrc-coronavirus-covid-19-statistics#self-employment-income-support-scheme Accessed 23/06/21.