The initial impact of COVID-19 and policy responses on household incomes

Mike Brewer,Laura Gardiner

doi:10.1093/oxrep/graa024

Mike Brewer, Laura Gardiner

Open Access

https://doi.org/10.1093/oxrep/graa024

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Abstract

As soon as the scale of the coronavirus shock to the economy became clear, the UK government introduced three policies to protect directly household incomes: a Job Retention Scheme, to pay the wages of employees who were temporarily furloughed; a Self-Employment Income Support Scheme, to give grants to established self-employed people whose businesses had been affected; and a package of increases to entitlements to social security benefits, with Universal Credit at the core, that bolstered the UK’s means-tested ‘safety net’. This paper analyses the design and beneficiaries of these policies and, given the distributional pattern of the labour market shock, considers the emerging overall impact on living standards, particularly of low-income households.

Highlights

The UK is in the midst of the biggest shock to economic activity that it has experienced for hundreds of years, one that is rooted in the labour market, driven by the shutting down of certain sectors of the economy and the effects of social distancing rules
We focus on the three elements relating more directly to individual and household incomes: the Coronavirus Job Retention Scheme (JRS), the Self-Employment Income Support Scheme (SEISS), and changes to the social security system
We have considered the emerging evidence on the overall impact of the pandemic on the living standards of low-income households, given what is known at the time of writing about the distributional pattern of the labour market shock and the major policy responses

Summary

Introduction

The UK is in the midst of the biggest shock to economic activity that it has experienced for hundreds of years, one that is rooted in the labour market, driven by the shutting down of certain sectors of the economy and the effects of social distancing rules. It shows a great deal of variation in the extent to which the social security system protects people from the financial consequences of unemployment. Such tests have their justifications, but pose challenges to the

Lone parent Couple with children

Estimated average difference between income change and spending change

Summary and conclusions