Mayors warn the gov’t that an income crisis is unfolding as new research shows that 2.5 million more people are expected to fall into hardship by Spring

The London Mayor Sadiq Khan, Greater Manchester Mayor Andy Burnham, Sheffield City Region Mayor Dan Jarvis, North & Tyne Mayor Jamie Driscoll and Liverpool City Region Mayor Steve Rotherham have joined forces to call on the government to take further action to protect incomes in response to the growing income crisis unfolding this winter. According to new research for the group of Mayors by the New Economics Foundation (NEF), by April next year 2.5 million more people (compared with September) will be living on an income with which they can’t afford a decent standard of living.

The new forecasts show that around a third of the population will be living below the minimum income standard (MIS) by Spring 2021, even if the £20 a week uplift in Universal Credit is extended. The MIS is calculated by the Joseph Rowntree Foundation and Centre for Research in Social Policy to give a threshold for the ​“minimum socially acceptable standard of living” and provides the basis for calculating the real living wage.

The analysis from NEF models three different months: September 2020, November 2020 and April 2021. It identifies two primary factors driving up the number of households receiving less than the MIS since the summer: a loss of work or working hours; and lost earnings due to being placed on furlough (before April 2021 only).

The modelling shows that as of September, just under 20 million people were already living below the MIS. In November, this number is expected to rise by around 800,000 to 20.6 million. If there is no extension of the £20 a week uplift to Universal Credit, the modelling shows there will be 2.5 million more people living below this level in April 2021 compared to September, or 22.5 million in total. But even if the uplift is extended, 1.7 million more people will still fall below the MIS this April, bringing the total to 21.7 million or 33% of the population.

With millions of self-employed people still ​‘excluded from government support’ and the growing number of people relying on Universal Credit, the Mayors have warned the Chancellor that he did not do enough in last weeks Spending Review to support people facing real hardship this winter across their communities.

The Mayors are calling on the government to reduce the numbers of people excluded from government support schemes and to bolster social security to strengthen the safety net for people being hardest hit. They say the government must provide everyone that needs it with a living income so that they can afford the basics to live on throughout the pandemic.

The New Economics Foundation are proposing a minimum income guarantee as a first step towards ensuring a living income this winter. The guarantee would ensure that everyone who needs it receives at least £227 a week through the rest of the pandemic as part of a ​‘Winter Plan for jobs, incomes and communities’.

The Mayor of London, Sadiq Khan, said:
​“For many Londoners this has been the most difficult year in living memory, and Covid has had a devastating impact on businesses and livelihoods. The latest figures show the largest increase in unemployment in London in at least 30 years, plunging thousands of people into hardship.

“London is a city of nine million people, grappling with deep and entrenched inequalities — a lack of affordable and good quality housing, widespread food insecurity, rising costs of living and high levels of child poverty. I have been calling on the Government to give the city and its people the support that we need; targeted help and an extension to the business rate holiday for the worst-affected sectors, an urgent solution to the situation whereby three million self-employed people still receive absolutely no Government help at all, and the rapid roll out of mass testing and vaccination programmes within the working-age population.”

Mayor of Greater Manchester, Andy Burnham, said:
​“In Greater Manchester, businesses and residents have been living under various severe forms of local restrictions since July. It has had a major impact on our local economy and a devastating effect on the lives and livelihoods of so many.

“What is now apparent is that this stark New Economics Foundation research clearly demonstrates that based on current trends a third of the entire population will be experiencing some form of financial difficulty by the Spring.

“Government has gone a long way this year in supporting many working people hit hard by the pandemic – furlough, business support schemes, the new Local Restrictions Support Grant and so on. However, millions of people have fallen through the cracks and received insufficient financial support. There remains time for Government to right this wrong, but make no mistake: time is running out so they must move fast to plug the gaps and do right by these people.”

Mayor of North and Tyne, Jamie Driscoll said:
​“These are shocking numbers. We knew this was coming but the scale of it is brutal. This is the aftershock of the pandemic and it needs action now or the ripples will last for generations.

“There’s obviously a moral case for the government to act. No one should be suffering. But there’s also an indisputable economic case — how can Britain possibly become a prosperous country when people don’t have enough to eat, when people can’t pay their rent, when families can’t afford to go out. It will create a vicious cycle. We’ve seen it before in the North East. Some areas still haven’t recovered from the devastation of our heavy industry a generation ago.

“Exceptional times need exceptional measures. We need a Green New Deal to create the hundreds of thousands of jobs — not just in renewables, but building affordable, warm homes, restoring our public services, and investment in our ecosystem of small businesses.

“I’m doing everything I can, creating thousands of good, well paid jobs here in the North of Tyne. But we need the firepower of central government to tackle a problem of this magnitude.”

Dan Jarvis, Mayor of the Sheffield City Region, said:
​“This winter is going to be a time of hardship for millions of people, as we grind towards the anniversary of the COVID pandemic. The fact that we are on track for a third of the UK to be living on less than the Minimum Social Income shows just how unprecedented this crisis is. We need a response that matches that scale, and makes sure people do not fall through the gaps. It’s just not good enough to help most people, and leave others to founder. There is finally a light at the end of the tunnel, but we have to help people get there.”

Steve Rotheram, Metro Mayor of the Liverpool City Region, said:
​“The Government promised they would ​‘level up’ the country, but this report shows the shocking reality that almost a year after the general election, millions of people are being left worse off this winter, not better.

“Just a few months ago, the Chancellor promised he’d do ​‘whatever it takes’ to help us through this crisis. Instead, in the run up to Christmas, millions are being forced to choose between putting food on the table or keeping their families warm. I hope he keeps his word and acts now to right this injustice.”

Contact
Sofie Jenkinson, sofie.jenkinson@neweconomics.org, 07981023031

Notes to editors
Case studies are available in partnership with Excluded UK — please contact the NEF press office for more information.

The full analysis will be available from: https://​newe​co​nom​ics​.org/​2​0​2​0​/​1​1​/​f​a​l​l​i​n​g​-​t​h​r​o​u​g​h​-​t​h​e​-​c​racks

For more information on the Winter Plan for jobs, incomes and communities see: https://​newe​co​nom​ics​.org/​2​0​2​0​/​1​1​/​w​i​n​t​e​r​-​p​l​a​n​-​f​o​r​-​j​o​b​s​-​i​n​c​o​m​e​s​-​a​n​d​-​c​o​m​m​u​n​ities

The New Economics Foundation is a charitable think tank. We are wholly independent of political parties and committed to being transparent about how we are funded.

The minimum income standard (MIS) sets the bar not at survival, but at a ​“minimum socially acceptable standard of living” and is a measure that attempts to capture how much money an individual or a family need to have a minimum standard of living.

The Joseph Rowntree Foundation (JRF) have consulted with the UK population and, with the Centre for Research in Social Policy (CRSP), run the numbers to produce a meticulous methodology for estimating the MIS on a family by family basis (Table 1). The results are shown with and without housing and childcare costs, because in practice it these costs (housing and childcare) vary significantly across households and regions of the UK.

Table 1: The minimum income standard defines the amount of income required to achieve a ​“minimum socially acceptable standard of living” and varies based on household characteristics

Minimum income standard thresholds for 2020 across four household typologies

Source: JRF and CRSP, 2020

In the latest historical data (the 2017/​18 financial year) an estimated 18.7 million people lived in households falling below the MIS. Within this, JRF show that a further 11.2 million people were in households living on less than 75% of the MIS. This identifies a particularly vulnerable group of households who are four times more likely to experience deprivation than those above the MIS.

Underpinning the analysis is also the Bank of England’s forecasts for unemployment. In Q4 2020, they predict a rate of 6.3%, up from 3.9% at the start of year, and equivalent to a net increase of around of 840,000 people during 2020. And unemployment is expected to continue to rise, as demand remains suppressed, throughout the first half of next year, peaking at 7.75% in Q2 2021. In addition to this, for many who have not lost their jobs, they have still lost work. The Resolution Foundation estimates that 4% of workers have lost more than 10% of their income despite not being furloughed, primarily due to a reduction in working hours.

The analysis estimates that furlough uptake during the second wave will reach 4.5 million, which assumes most sectors will be able to sustain their productivity higher than seen during the first lockdown, with sectors directly impacted by lockdown (e.g. arts, recreation, retail, and food services) furloughing at levels seen in May-July, and less impacted sectors furloughing at rates seen in August.

To understand the impact of all these factors over the coming months, NEF used the IPPR tax and benefit model to assess how many households will fall below the MIS threshold this winter across the UK’s. First we take estimates for key economic aggregates for Sep 2020, in order to model the number of people below the MIS shortly before the second lock down was announced (see Table 2 below). Using the forecast estimates discussed in the section above, we then model new labour market data for November 2020 and April 2021, in order to track the number of families falling below the MIS both at the start of winter during lockdown, and at the end of winter after the expiry of the furlough.

New NEF modelling forecasts significant rises in the number of people falling below the MIS between September 2020 and November 2020, and April 2021.

Model forecast outputs of the IPPR Tax and Benefit model, adapted by NEF to incorporate crisis-linked economic policy and expected future rates of furlough, job loss, and loss of working hours.

Source: NEF analysis using IPPR Tax and Benefit Model, with inputs derived from the ONS and Bank of England. Numbers in the table may not sum due to rounding.

Notes: Our April 2021​“with UC uplift” scenario assumes that the £20 a week increase in the main rate of universal credit and working tax credits is extended beyond March 2020. We do not assume that any other temporary changes to benefits are extended. All modelling was completed prior to the publication of Office for Budget Responsibility (OBR) November forecasts. The discrepancies between the OBR November forecast and our model forecast were minor, including a slightly higher unemployment rate in our model (for example 0.25 percentage points higher in April 2021), but also slightly higher minimum wage rates in 2021, with these effects likely to broadly cancel one another out.

The modelling also shows that among those living below the MIS in April 2021, 13.3 million of them (one in five of the total population) are expected to be living in families with incomes below 75% of the MIS, a rise of 2.6 million compared with September. These families have been shown to be four times more likely to be living in material deprivation than those above the MIS. Some of this increase in deprivation could be avoided if the UC uplift were to be extended beyond March, but even this would not be enough to prevent 1.7 million more people falling below 75% of the MIS.