Nowcasting Poverty for Q1 2021

Original analysis from the Legatum Institute using the Social Metrics Commission’s approach to poverty measurement demonstrates both the likely impacts of Covid-19 on poverty and the insulating effect that Government policy has had.

A report for the UK Poverty Unit programme

Published 4 Jul 2021

UK Government benefit changes have protected hundreds of thousands of people from poverty during the pandemic

The survey data that underpins the measurement of poverty in the UK and covers the pandemic period will not be available until 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, our 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.

The original analysis uses the Social Metrics Commission’s approach to poverty measurement and is our best assessment of the likely course of poverty since the start of the crisis up to Q1 2021, the protective impact of Government action that has already been taken, and choices that still need to be made.

Key findings

  • UK poverty is a significant long-term issue. Prior to the pandemic, more than one in five people in the UK (22%) lived in families in poverty. This has hardly changed over the last 20 years. This means that prior to the pandemic 14.4 million people lived in poverty in the UK.
  • As well as significant health and social impacts, the Covid-19 pandemic has had economic impacts. These have most clearly been seen in falling employment levels, wage reductions for furloughed workers and falling earnings for the self-employed. In general, those hardest hit have been young workers, those in relatively low-paying employment, and those working in sectors such as hospitality and retail.
  • Poverty has risen as a result of the Covid-19 crisis. Our projections suggest that, compared to the situation where the Covid-19 pandemic had not hit the country, 320,000 more people were in poverty in Q1 2021.
  • However, the effects of Covid-19 have not been evenly experienced. The largest impacts have been felt by working-age adults, whilst there has been a notable reduction in the number of pensioners living in poverty. The distribution of economic impacts has meant that compared to the situation where Covid-19 had not hit the UK, 340,000 more working-age adults are in poverty in Q1 2021, whilst there has been a reduction of 70,000 pensioners living in poverty in the UK.
  • Government policy has insulated many families from poverty. In an attempt to mitigate some of the financial impacts of the Covid-19 crisis, the Government has introduced a range of financial support for families and businesses. These include a temporary increase of £20 a week to Universal Credit and Working Tax Credits and the suspension the Minimum Income Floor (that applies to self-employed people claiming Universal Credit). We estimate that these policies alone have protected some 650,000 people from poverty in Q1 2021. This action from Government has also reduced the levels of very deep poverty, with 270,000 fewer people living in families more than 25% below the poverty line.
  • Poverty has reduced amongst some groups. The increases to benefits have also meant that some groups have seen a fall in poverty. This is because many non-working families have seen their benefits increase, meaning that they are less likely to be in poverty than would have been the case in the absence of the Covid-19 pandemic. Compared to the case where the Covid-19 crisis and resulting increases to benefit generosity had not happened, there has been a reduction of 140,000 in poverty in people living in lone-parent families and a reduction of 140,000 in poverty in people living in workless families in Q1 2021.

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.

It is no surprise that the economic fallout from the Covid-19 pandemic has increased poverty in the UK. However, the strength of reaction from the Government has insulated hundreds of thousands of people from poverty. This shows that, with the right tools and the right information, Government can ensure that, at a time of crisis, many of those who are vulnerable to poverty are protected. To ensure this continues as we begin to adapt to life after, or living with Covid-19, there is a clear need for the Government to push ahead with its creation of Experimental Poverty Statistics and to place a comprehensive anti-poverty strategy at the heart of its Covid-19-recovery response.


Nowcasting Poverty for Q1 2021:

UK Government benefit changes have protected hundreds of thousands of people from poverty during the pandemic

Jul 2021

Download the reportPDF