Poverty during the Covid-19 crisis

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.

Published 30 Nov 2020

Poverty has risen as a result of the pandemic but Government policy has insulated many families from poverty.

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 fill the gap, this briefing presents the results of a ‘nowcasting’ exercise using the most up-to-date data on employment, earnings, and Government policy available, along with a range of assumptions, to model the likely level and distribution of poverty in both Summer and Winter 2020.

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, 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.
  • These impacts have not been evenly spread. Partly as a result of the nature of the lockdowns needed to stem the rise in infections (which, for example, have seen specific sectors closed down completely for extended periods), the economic impacts of the Covid-19 crisis have been felt particularly hard in certain sectors and by people with a range of specific characteristics. 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. Compared to the situation where the Covid-19 pandemic had not hit the country, 440,000 more people were in poverty in Summer 2020 and 690,000 more in Winter 2020.
  • The largest impacts have been seen in poverty amongst working-age adults. The distribution of economic impacts has meant that poverty has risen most amongst working-age adults. Compared to the situation where Covid-19 had not hit the UK, 640,000 more working-age adults are in poverty in Winter 2020.
  • 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. We estimate that these policies alone have protected some 690,000 people from poverty in Winter 2020.
  • 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. Our projections show a reduction of 100,000 in poverty amongst people living in lone-parent families and a reduction of 170,000 in poverty amongst people in workless families in Winter 2020, compared to the case where the Covid-19 crisis and resulting increases to benefit generosity had not happened. Conversely, there have been significant increases in poverty amongst people living in families that were working prior to the Covid-19 crisis. These have resulted from job losses and earnings reductions that have tipped them into poverty.
  • Poverty depth has also changed. Compared to the situation where the Covid-19 pandemic had not impacted the UK, 270,000 more people are in the deepest form of poverty. However, the majority of the increase in poverty is seen in the shallowest form of poverty, with 370,000 more people in this situation because of the impacts of the Covid-19 pandemic.

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.

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Poverty during the Covid-19 crisis:

Poverty has risen as a result of the pandemic but Government policy has insulated many families from poverty.

By Baroness Philippa Stroud

Nov 2020

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