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The Living Standards Audit 2020

Evidence type: Insight i


Alongside the dire health implications of the coronavirus pandemic, the economic effects have had a huge impact on household living standards. As large parts of the economy were being shut down in the first lockdown between March and May 2020, it became clear that the lockdown and the ensuing recession would have impacts felt disproportionately throughout society. The pandemic followed two other major events that had far-reaching consequences for living standards – the financial crisis and the following recession, and a post-referendum inflation ‘hit’. While there was record employment and some progress in tackling pay inequality, this was offset by weak earnings growth. Real incomes for the lowest income families actually fell, partly due to cuts in social security benefits, and in 2018-19 were no higher than in 2001-02.

The study

This 2020 report is the latest living standards report from the Resolution Foundation and takes a detailed look at the impact of the coronavirus crisis on UK living standards. The study uses a range of secondary data resources and information from numerous Government and third-party agencies and think tanks. The 2018-19 Family Resources Survey is also used to base a lot of the forecasting on (termed ‘nowcasting’ in the report). Levels of earnings are updated using HMRC’s real-time PAYE data to assess pay growth at different points within the earnings distribution, while the impact of increases in minimum auto-enrolment pension contributions in 2019-20 is also modelled.

Employment levels and population demographics are updated using the Labour Force Survey and ONS population figures. Tax liabilities and benefit entitlements are then simulated using this data, accounting for changes to the tax and benefits system. The incomes forecasted are specifically focussed on May 2020 rather than the entire 2020-21 period, meaning assumptions of changes in the economy are based on data available up to this point in 2020.

The authors also use regression techniques to analyse the May 2020 wave of the Understanding Society coronavirus survey.

Key findings

  • HMRC’s real-time information data shows that the number of employees fell by 574,000 between March and May 2020, with the number of hours worked falling by 17% on an annual basis between March and May 2020.
  • Typical ’real’ pay has fallen by 1.5% ‘on the year’.
  • Around two-in-five of those who were self-employed reported their pay having fallen by more than a quarter between February and May 2020.
  • Family incomes were initially largely protected by policy action, such as the coronavirus Job Retention Scheme (JRS) and Self-Employment Income Support Scheme (SEISS) supporting the incomes of over 12 million people during lockdown.
  • The hardest-hit sectors were lower earning parts of the economy (such as leisure, retail and hospitality), meaning the labour market effects have been concentrated on low earners and the young.
  • It is estimated that over half of those in work and in the lowest income households had their work negatively affected in come way, compared to three-in-ten workers in the highest income households.
  • The report estimates that typical non-pensioner income fell by 4.5% in real terms between 2019-20 and May 2020, with typical household incomes in lockdown no higher than in 2006-07.
  • It is estimated that it is those aged 16-24 and 45-54 whose typical household incomes have fallen the furthest, with incomes for those groups around 6% lower in May 2020 than in 2019-20.
  • Going forward, the workers most at risk are disproportionately already in lower income households, with 23% of workers in the poorest fifth of the income distribution working in retail, hospitality, or leisure, compared to 9% in the highest income fifth.
  • Benefit support was expected to be dramatically cut back in April 2021, coming at a time when it is projected unemployment could be in double figures.
  • Council tax support is also expected to be reduced, as a £150 reduction for poorer working-age households in England expires, while support for private renters is expected to be cut.
  • An estimated six million households (18 million people) could each lose over £1,000 in April 2021 due to these changes, reducing the average income of the bottom half by around £800 (4%) relative to a continuation of that support.

Points to consider

  • Methodological strengths/weaknesses: The methodology used appears robust and uses a range of data sources to arrive at the conclusions.
  • However, a number of assumptions are made within the modelling that must be considered before using the findings to inform new policy.
  • Generalisability/ transferability: This report is of significant interest to politicians, policymakers and other stakeholders who are interested in assessing the impact of coronavirus on the living standards of the UK population.
  • Relevance: The findings are situated in a UK context, though some of the learnings may be transferrable to countries with similar welfare and regulatory regimes.
Contact information

Mike Brewer, Adam Corlett, Karl Handscomb, Charlie McCurdy and Daniel Tomlinson

daniel.tomlinson@resolutionfoundation.org Resolution Foundation