Millions slipping through the cracks

The coronavirus crisis continues to expose critical gaps in the UK’s welfare safety net. We’ve conducted analysis which reveals that as many as 5.6 million UK workers could be at risk of losing their jobs and falling back on meagre universal credit (UC) payments.

The government’s new support schemes to protect employee and self-employed incomes are welcome. But the ballooning amount of new claims for universal credit — one million new claims in the last two weeks of March, 10 times higher than normal — shows that they are insufficient in the face of an emerging unemployment disaster.

Those who do not qualify for the 80% income protection schemes must rely on a welfare system that is overwhelmed. If their claims do get processed, they will have to survive on a mere £90 a week — plus meagre top-ups for children and housing. For someone who had worked full-time on the minimum wage, falling back onto universal credit would mean getting barely one third of their former income, a loss of over £210 a week. The average self-employed person is likely to see a 67% drop in disposable income compared to being in work, a loss of almost £200 a week.

The crisis is now exposing the precarious situation faced by millions of people who, even before the virus-induced economic shock, were experiencing low pay and job insecurity. Those who have not been identified as ​‘key workers’ by the government, or who work in industries that have been shut down due to social distancing measures, are at the highest risk of losing their jobs whilst slipping through the gaps in the government’s new support schemes.

“Those who do not qualify for the 80% income protection schemes must rely on a welfare system that is overwhelmed.”

Employees on fixed term contracts, zero-hours contracts, or who were already underemployed pre-coronavirus, are among the most likely to be let go by their employers. Many were in fact suspended from work before the government protection schemes were even announced.

The self-employed are equally vulnerable. Many will not receive support from the government self-employed income protection scheme — either because they are newly self-employed (so haven’t submitted a self assessment tax return in 2018 – 19 tax year), only part self-employed or because they work as an incorporated micro-company. And those that are eligible will nonetheless have to wait until June to receive their payments.

Our analysis has found that, outside of occupations that have been identified as ​‘key’, there are as many as 5.6 million workers who meet one of the above characteristics for precarity. Within this number, 1.6 million workers are at particular risk, as they work in industries that have been directly affected by the government shutdown, such as restaurants and non-food retail shops.

Most of these workers will come to rely on universal credit for the coming weeks and months — perhaps longer. Given how small UC payments are, this is likely to represent a significant income shock.

What these 1.6 million people, and probably several million more, will need at this moment of crisis is a comprehensive, non-conditional, and non-means tested system that would provide an income floor for all working age adults.

“Outside of occupations that have been identified as ​‘key’, there are as many as 5.6 million workers who meet one of the above characteristics for precarity.”

At NEF, we have proposed a Minimum Income Guarantee (MIG) at a rate of £221 per person per week, equal to the 2019 minimum income standard (excluding rent — (forthcoming work at NEF will set out proposals for alleviating housing and childcare costs separately), established by the Joseph Rowntree Foundation and the Centre for Research in Social Policy. This would provide a decent income for anyone that needs it, including those already on UC, and those awaiting payments from the government’s current schemes.

Rather than seeing their income drop by up to 70%, the average self-employed or minimum wage worker would see a more modest fall of around 30%. . By removing all means testing at the point of access and making the payment universally available, the MIG could be implemented quickly without overwhelming delivery systems. Any potential overpayments (when someone ends up with a monthly income above £2,500, either after receiving MIG or who gets later reimbursed through other schemes) would be reclaimed through the tax system in future years.

With millions of other jobs at risk, many workers not covered by existing government programmes, and universal credit not fit for purpose, we need a Minimum Income Guarantee to ensure people have security and dignity in these extraordinary times.

Methodology note

We conducted the analysis based on the ONS. (2020). Labour Force Survey (Q4 2019) (the latest available). When defining ​‘key workers’ in the dataset, we follow the approach of Farquharson, Ch., Rasul, I. and Sibieta, L. (2020). Key workers: key facts and questions. IFS, and use the same occupational (SOC-based) definitions of ​‘key workers’. But to conduct the analysis of job insecurity among those outside the ​‘key’ occupations — the ​‘non-key’ workers — we also exclude all public sector workers, given that they are much more likely to be reallocated rather than lose employment.

In defining ​‘shutdown industries’ we follow the industry (SIC) based methodology of Joyce, R. and Xu, X. (2020). Sector shutdowns during the coronavirus crisis: which workers are most exposed? IFS.. Both ​‘key’ and ​‘shutdown industry’ classification types are inherently difficult to define precisely, therefore should not be seen as definitive. Please see the cited briefings for more details about the approaches and their caveats.

To arrive at our lower bound estimate (1.6m jobs at risk) we estimate the number of workers that are both (a) in ​‘shutdown industries’ and (b) that meet any of the following four criteria of insecure employment: 1. Employees in non-permanent jobs; 2. Employees who have a zero-hours contract; 3. Employees that usually work less than 16 hours and want more work; and 4.Self-employed. We include the self-employed because (a) they have no guaranteed hours/​income and are likely to be impacted by the overall economic slowdown during the lockdown and (b) as even those who will qualify for the government’s income support scheme will not receive payments until June, and so are still likely to face income insecurity in the intervening period.

Our higher bound estimate (5.6m) includes (a) all workers who are in ​‘non-key’ occupations, (excluding public sector workers) and (b) fall under any of our four criteria of insecure employment.

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