Half of UK families £110 worse off a year since general election, while richest 5% are better off by £3,300

Two years on from the general election, new analysis from the New Economics Foundation shows the top 5% of families have gotten richer by £3,300 a year, while the poorest 50% have had their incomes squeezed by £110. As a result, there are 300,000 more families in poverty in December 2021 compared with 2019.

The gap in incomes across regions has also widened in the last two years according to NEF, with places supposed to benefit from the government’s ​‘levelling up’ agenda worst hit:

• On average, incomes in the north-east have risen by less than £20 (or 0.1%) a year
• In the north-west and Merseyside by £80 (0.2%)
• In Yorkshire and the Humber £90 (0.3%)
• Northern Ireland also £90 (0.3%)
• In London, incomes have increased by more than £600 a year (1.3%)
• In the south-east £550 (1.1%)

The analysis breaks down this growing inequality further within regions, by working and non-working families, and family type:

• Families in the top 50% of disposable incomes have seen their living standards improve across the board, though fastest in London and the south-east. Meanwhile families in the poorest 50% have seen incomes fall everywhere except for London and eastern England.
• Losses are concentrated to those outside of work but even within workless families there’s large variation across regions, with average losses of more than £200 per year in Yorkshire and the Humber and the north-west and Merseyside, compared with small gains in the south-east and south-west.
• Single parents were the worst affected families across all regions, with single parent families in Yorkshire and the Humber and the north-west and Merseyside seeing their incomes fall by around 15 times as much as in London.

NEF argues this sharp increase in inequality has been driven by the government’s pandemic response, which has more recently left poorer families exposed to global price rises and inflation. The UK economy contracted faster than most other major western economies in 2020. This was in large part due to consecutive failures to lock down in time leading to infections and deaths rising faster and higher, necessitating longer and stricter lockdowns further down the line.

The design of emergency Covid-19 measures resulted in less support, on average, for the poorest. While furlough protected millions of jobs, those with less secure employment were more likely to fall through the cracks. At the same time, the UK had one of the weakest social security systems among advanced economies going into the pandemic, and the universal credit uplift was much less generous than top-ups seen in other in other countries. Those on legacy benefits saw no increase at all.

Alfie Stirling, director of research and chief economist at NEF, said:

“These results show that the government’s handling of the pandemic has led to the richest families and regions getting richer, while the poorest families are even poorer. With prices expected to continue increasing, the threat of a rise in interest rates and ongoing effects of Brexit, things could get a lot tougher for families that have already suffered most.

“In the long run, any agenda to tackle these issues needs to grasp the fundamental drivers of regional inequalities for places, people, and industry. But in the short term, more should be done to help families through the social security system. NEF’s proposal for a Living Income would ensure an income floor that reflects the true cost of living for families.”

Dominic Caddick, assistant researcher at NEF, said:

“Far from ​‘levelling up’, on this prime minister’s watch the families and places that were already poorest have fallen even further behind the rest of the country. This would be an indictment on any government, let alone one where the promise to ​“level up” sits at the heart of its political and policy agenda.

“This analysis exposes the vulnerability of the UK’s current safety net in responding to real world change. We need a bold reimagining of income support: NEF’s argument for a Living Income would help people deal with the challenges and opportunities presented by the fast-changing economy we’re all living in.”

Contact

Becky Malone, becky.malone@neweconomics.org. 07925950654

Notes to editors

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 full analysis will be available at https://​newe​co​nom​ics​.org/​2​0​2​1​/​1​2​/​t​w​o​-​y​e​a​r​s​-​o​n​-​b​r​i​t​a​i​n​-​h​a​s​-​b​e​e​n​-​t​o​r​n​-​a​p​a​r​t​-​n​o​t​-​l​e​v​e​l​l​ed-up

Using the IPPR tax and benefit microsimulation model we have forecast household incomes for December 2021, based on data from the Department for Work and Pensions (DWP) Family Resources Survey and the latest forecasts for things like inflation, earnings, and interest rates from the Bank of England (BoE) and the Office for Budget Responsibility (OBR). We have also applied the latest policy changes made at the Autumn Budget where these have already taken effect. We then compare this forecast for December 2021 to household incomes in the month Johnson took power – December 2019 – and compare the changes experienced by families in real terms over the period.

Poverty is defined in terms of families with equivalised income below 60% of the UK median before housing costs.

Figure 1: Incomes of the poorest have been squeezed, while the richest have had runaway growth

Source: NEF analysis using the IPPR tax and benefit microsimulation model, based on data from the DWP Family Resources Survey and various OBR and Bank of England forecasts data • The lowest income 5% of families are excluded from this analysis due to known issues with data volatility

Figure 2: The gap in incomes across regions has widened since Boris Johnson took power

Source: NEF analysis using the IPPR tax and benefit microsimulation model, based on data from the DWP Family Resources Survey and various OBR and Bank of England forecasts data