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On 8 October 2020, Baroness Sherlock, Labour’s spokesperson on work and pensions matters in the House of Lords, is due to ask the Government what assessment they have made of the impact of the Covid-19 pandemic on low-income families with children and the support provided to them by the social security system.

This In Focus article gives an overview of how the coronavirus pandemic and subsequent restrictions have affected jobs and incomes, the social security measures the Government introduced in response to the crisis and how these are expected to change. Further reading on these topics is suggested.

How has Covid-19 affected incomes?

The coronavirus pandemic and resulting restrictions have led to fewer people being in employment and more people being unemployed. According to the ONS, employment levels for people aged over 16 fell by 165,000 between the period January to March 2020 and May to July 2020.

Pay growth slowed sharply in March and April 2020 before stabilising in May to July 2020. Annual growth in employee total pay (including bonuses) is estimated by the Office for National Statistics (ONS) to be negative 1.0% for May to July 2020, a fall of 1.8% in real terms.

The number of people claiming unemployment-related benefits reached 2.7 million in August 2020. This includes some people in work but on low incomes. This is an increase of 120.8% since March 2020. However, the ONS has observed that this change in the claimant count is not wholly due to changes in the number of people who are employed. This is because changes to universal credit as part of the UK Government’s response to Covid-19 mean that an increasing number of people became eligible for unemployment-related benefit support despite still being in work. In addition, people who were still employed but saw their pay reduced, for example those on 80% of their salary as part of the coronavirus job retention scheme, may have become eligible for unemployment-related benefits.

The Institute for Fiscal Studies used data from a budgeting app to estimate the impact of the crisis on incomes and spending. It found that by May 2020 median after-tax household earnings were 9% lower compared to what would have been expected had the crisis not occurred. Median household income, including benefits, was 8% lower. It also found that households in the poorest fifth found their earnings reduced the most, with a fall in their median household earnings of approximately 15%.

How did social security benefits change in response to Covid-19?

In addition to support for workers such as the coronavirus job retention scheme and the self-employment income support scheme, the Government introduced changes to social security benefits to support households during the coronavirus pandemic. These changes included:

  • a temporary increase in the universal credit standard allowance by £20 a week;
  • a temporary increase in the basic element of working tax credit by £20 a week;
  • a temporary suspension of work-search and similar requirements for universal credit;
  • a temporary suspension of the minimum income floor for self-employed workers in universal credit; and
  • an increase in the local housing allowance.

The Government also provided supermarket vouchers for families whose children normally receive benefits-related free school meals. These were provided while schools were closed during term time and in the school holidays up to September 2020. (For more information about free school meals during the pandemic please see the Lords Library’s free school meals briefing).

People with no recourse to public funds as a condition of their visa have not been able to access universal credit, though they are eligible for the job retention scheme and the self-employment income support scheme. The House of Commons Work and Pensions Committee found that people with no recourse to public funds who have lost income because of the crisis are facing further hardship. In some cases, such people are also facing homelessness and destitution. It called on the Government to suspend this visa condition.

Some campaigning organisations have argued that low-income families with children should get additional support from the benefits system during the pandemic. The Joseph Rowntree Foundation has called on the Government to introduce a £20 per week increase to the child element of universal credit and child tax credit. The Child Poverty Action Group is campaigning for an increase of at least £10 a week to both child benefit and the child element within universal credit and child tax credits; free school meals to be provided to all children whose families receive universal credit or tax credits; and the benefit cap to be suspended for the duration of the crisis, or abolished altogether.

The Shadow Secretary of State for Work and Pensions, Jonathan Reynolds, cited a prediction by food banks that “UK destitution rates are set to double by Christmas” as evidence that the current benefits system is not providing adequate protection.

What is happening to the coronavirus benefit changes now?

The increases in universal credit and working tax credit are set to expire in April 2021.

The increase in the local housing allowance rate does not have an expiry date, and the Secretary of State for Work and Pensions, Dr Thérèse Coffey, has said that this is a permanent increase.

The minimum income floor is due to expire in November 2020.

In addition, the coronavirus job retention scheme will end in October 2020. It will be replaced with a job support scheme which will subsidise wages where employees are working on reduced hours. Both the Office for Budget Responsibility and the Resolution Foundation have predicted significant increases in the number of people claiming universal credit once the coronavirus job retention scheme comes to an end, though these predictions were published before the announcement of the new job support scheme.

Further reading

Employment, pay and incomes

Social security

Image by Josh Appel on Unsplash.