How should policy support family incomes in the coronavirus crisis?

Hannah Slaughter, Economist, Resolution Foundation

Hannah SlaughterThe coronavirus crisis has had a big impact on family finances. More than a quarter of adults saw their incomes fall during the initial lockdown period, and 23 per cent of adults still had lower income as the economy reopened (June-September) than before the crisis. And the longer-term impact of the pandemic, combined with the fact that incomes have stagnated since the financial crisis, means we are on course for household incomes, which increased by 40 per cent in the 15 years prior to 2008, to grow by just a quarter of that (10 per cent) in the 15 years since. While bold policy action has helped to prevent a living standards disaster, the Government will need to continue to act to prevent a rise in poverty as the economy recovers.

The social security system – primarily Universal Credit (UC) – provides a vital safety net. Early in the pandemic, the Chancellor took the welcome step of raising the basic rate of UC by £20 a year, reversing cuts that had taken UC to its lowest level (in real terms) since the early 1990s. But the Chancellor only intended the rise to last until April 2021 – and despite the ongoing pandemic, Government policy is still to go ahead with the cut at exactly the point when unemployment is expected to spike. This will impact 6 million of the lowest-income households – containing 12 million adults and 6 million children – with the poorest quarter of households set to lose 5 per cent of their disposable incomes. Reversing planned cuts (and extending the previous uplift to legacy benefits) is an essential step to support families hit by the crisis.

In the longer term, however, a return to economic growth will be needed to deliver rising living standards. The short-term focus is (rightly) on protecting public health, with the Government keeping large parts of the economy shut down to slow the spread of the virus. But once it is safe to do so, policy makers’ focus must turn to stimulating the economy. This should include supporting job creation – for example, through incentivising hiring by raising the National Insurance contribution threshold and investing in the social care workforce – and an increase in public investment, targeted at projects such as green infrastructure that would also tackle long-term policy challenges.

But while economic recovery is necessary to protect family incomes, getting into work doesn’t always protect people from hardship. Even at record employment levels, work did not guarantee sufficient pay or hours to lift families out of poverty: in 2018, seven-in-ten adults in poverty were either working themselves or living with someone else in employment. Policy makers must put job quality at the heart of the recovery. Alongside better pay (continuing to increase the National Living Wage, for example), low earners deserve better working conditions and more financial security. More control over working hours – including a right to a contract that reflects the hours they work, advance notice of work schedules, and compensation where shifts are cancelled without reasonable notice – would be a good place to start.

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