Half of UK families are £110 worse off a year since 2019 general election

But richest 5% are better off by £3,300, suggesting Britain is being torn apart rather than levelled up

Living Income

The 2019 Conservative manifesto promised to unite and level up, spreading opportunity across the whole United Kingdom”. When Boris Johnson became prime minister he doubled down on this promise to level up across Britain”, with a focus on forgotten people and the left behind towns”. He had just won a so-called super majority’ in the house of commons, built from newly won seats outside of its traditional heartlands, including poorer than average constituencies across the midlands and north of England. Many presumed these places were among those in mind to benefit most from the levelling up’ agenda.

Two years on from the election, and almost halfway through the current parliament, this analysis presents new modelling looking at who has benefited most so far, and who has lost out. The findings are striking. Consecutive policy failings in response to waves of the pandemic and supply chain disruption have made inequalities, already high in 2019, much, much worse – both across households nationally and within and between nations and regions. 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.

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 of Johnson’s election victory – December 2019 – and compare the changes experienced by families in real terms over the period.

The overall picture of winners’ and losers’ is stark. Comparing December 2019 to December 2021, families with below median household income have seen their living standards squeezed right across the distribution (Figure 1 below). On an annualised basis, the poorest 50% of families have seen their disposable incomes squeezed by an average of £110 in real terms (here and henceforth in December 2021 prices), while the top 5% of families have seen gains of more than £3,300. This has seen poverty – defined in terms of families with equivalised income below 60% of the UK median before housing costs – rise by 300,000 in two years.

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

This sharp increase in inequality has been driven by the decisions made by government in their policy response to Covid-19. The UK economy contracted faster than most other major western economies in 2020, even after taking account of different methodological approaches to measuring GDP. This was in large part due to consecutive failures to lock down in time, initially in March 2020 and then again in September 2020.

This meant infections and deaths rose far faster and higher in the UK compared with many other countries, necessitating longer and stricter lockdowns further down the line and a greater negative impact on the economy overall. Despite faster overall growth in 2021, by the end of summer the UK remained one of only two G7 nations where economic activity remained more than 2% behind pre-pandemic levels – with the US by contrast already more than closing the gap.

The design of economic protections in the UK during the pandemic resulted in less support, on average, for the poorest. While schemes such as furlough were successful in protecting millions of jobs, those with less secure employment – for example those on fixed-term contracts and some in self-employment (even after self-employed income protection) – were more likely to fall through the cracks.

At the same time, the universal credit uplift was much less generous than top-ups seen in other advanced economies, and those on legacy benefits such as job seeker’s allowance and employment support allowance in the UK saw no increase at all.

Going into the pandemic, the UK social security system already had one of the weakest replacement rates – proportion of in-work income recovered through unemployment support – among 38 advanced economies. But insufficient support for those relying on these systems during the pandemic, and particularly since the withdrawal of the £20 uplift, has left the poorest families in the UK almost uniquely exposed to global price rises – particularly fuel and energy – this winter.

In addition to this low baseline level of social security support, the uprating’ process (where benefits are adjusted for inflation each year) introduces a lag, as benefits for the forthcoming year are fixed in April based on the previous September’s inflation rate. This means that current benefits were adjusted for September 2020’s relatively low 0.5% inflation (compared to 4.2% inflation in October 2021).

At the other end of the income scale, windfall gains for the richest 5% have been seven times higher than for anyone else in the top half of the distribution (Figure 1 above). This reflects the relative insulation from the effects of the downturn for certain high paying jobs and occupations, as well as continued growth in international stock markets across the period, despite inflation and reduced activity elsewhere in the real global economy.

These same dynamics have also led to increased inequalities across regions (see Figure 2 below). On average, disposable real incomes have barely risen in the north-east at all since December 2019 (less than £20 per year, or less than 0.1%). Similarly, the north-west and Merseyside (£80, 0.2%), Yorkshire and the Humber (£90, 0.3%) and Northern Ireland (also £90, 0.3%) have barely fared better. At the same time, disposable real incomes in London have increased by more than £600 per year (1.3%) and by more than £550 in the south-east (1.1%).

Figure 2: The gap in income across regions has widened since the 2019 general election

Mirroring the story nationally, inequality within regions has also grown. Those families in the top 50% of disposable incomes nationally have seen their living standards improve across the board, though fastest of all in London and the south-east (Figure 2 above). Meanwhile families in the poorest 50% of the income distribution have seen their incomes fall, in real terms, everywhere except for London and eastern England.

Figure 3 below confirms that the losses are concentrated to those outside of work, which highlights the importance of inadequate income protection, particularly against inflation, for those on UC, pension credit and out of work legacy benefits. But even within workless families the variation across regions remains large, with losses of more than £200 per year on average in Yorkshire and the Humber and the north-west and Merseyside, compared with very small gains in the south-east and the south-west.

Figure 3: Those without work were hardest hit, but with large variance between regions

Our modelling also breaks down the change in income by family type. Single parents were the only family type to see a fall in real income across all regions, though single parent families in Yorkshire and the Humber and the north-west and Merseyside saw their real incomes fall by around 15 times as much as in London (Figure 4 below). Given 90% of single parents are women, this finding has important implications for the gender impacts of the government’s record on levelling up to date. Single pensioners were the next hardest hit, seeing a fall in average real income across eight of the UK’s 12 regions and nations. Pensioners in Wales were the worst off, seeing a fall in disposable income of around £170 per year in real terms.

Figure 4: Single parents and single pensioners were the worst affected households across regions

Far from levelling up, 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 now in real terms than the month of Johnson’s election victory (having been left particularly exposed to rising inflation). 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.

Worse still, the immediate outlook looks certain to deteriorate further. With prices expected to continue increasing, combined with the threat of a rise in interest rates and the continued effects of Brexit, things may well be about to get a lot tougher for those 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 – this includes spreading good green jobs across the country, as well as diversifying company ownership models and distributing the spread of wealth, including via a more progressive tax system.

But in the short term, more should be done to help families directly through the social security system. In particular, and considering rising prices, the analysis exposes the vulnerability of the UK’s current safety net in responding to real world change. A more fundamental solution in line with NEF’s argument for a Living Income would ensure an income floor that reflects the true cost of living for families, rather than an accumulation of decades of underfunding and arbitrary cuts to cap income support costs. With windfall gains for some of the richest families over the past two years, it’s also clear who can and should be helping to pay for such reform.

Image: Number 10 (CC BY-NC-ND 2.0)

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