The Institute of Fiscal Studies found furlough and the universal credit increase had an ‘astonishing’ impact on living standards but self-employed, low-income working families, and people from ethnic minority groups missed out
The furlough scheme and the £20 increase to universal credit had an “astonishing” impact on preventing poverty during the pandemic, a new report has found, but failed to stop everyone who needed support falling into increased deprivation.
The Institute of Fiscal Studies’ (IFS) annual report into living standards, inequality and poverty found unemployment, earnings growth, household bill arrears and food bank use were all similar to pre-pandemic levels in early 2021 following government intervention.
But the impact of economic disruption and loss of national income during Covid-19 saw self-employed workers, low-income working families, and people from ethnic minority groups driven further into poverty. Meanwhile, both furlough and the universal credit increase will end in September.
“Given that the pandemic has seen the biggest ever recorded drop in national income, the overall picture on deprivation and the labour market at the start of this year looks surprisingly positive,” said Tom Waters, an author of the report and a senior research economist at IFS.
A UK government spokesperson told The Big Issue the report “confirms that our temporary targeted interventions have made a real difference in households affected by the economic shock of Covid-19”.
Both Prime Minister Boris Johnson and Work and Pensions Secretary Therese Coffey confirmed on Wednesday that the government would phase out the £20 increase from September.
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The spokesperson added the Plan for Jobs, including the Kickstart and Restart Schemes, would help people into work beyond the end of the restrictions roadmap on July 19.
However, self-employed people who lost all their work from the first lockdown saw a sharp worsening of deprivation that has only partially receded since, according to IFS.
The share of self-employed workers reporting a falling behind on at least one of their household bills jumped from two per cent to 13 per cent in spring 2020 while there was also a rise in the proportion reporting financial difficulties from 16 per cent to 24 per cent.
By the start of 2021, 15 per cent said they were still behind on household bills as large parts of the UK moved into lockdown while 11 per cent said they were struggling financially.
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More than a third of self-employed workers found themselves ineligible for the Self-Employment Income Support Scheme (SEISS), like Anna Stiles, a self-employed potter from Dorset.
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Anna started her business running pottery classes three years before the pandemic but had only started to record minimal profits in the tax year before the pandemic hit. As the UK government’s SEISS offered taxable grants worth 80 per cent of average monthly trading profit, Anna was entitled to no support through her business.
She has since been able to claim universal credit, receiving £1,100 and £200 in child benefit every month to pay rent and look after her three children.
But the lack of business support has taken its toll and 54-year-old Anna has been forced to sell her personal possessions and pottery wheels she used for her business to make ends meet.
“I tried to do the right thing and be there for my children and work full time to, in effect, have the door slammed in my face,” Anna told The Big Issue.
“The whole thing is so unfair. The rich have gotten richer and the really small businesses, like mine, that work really hard to keep the economy going have suffered.
“If it wasn’t for my ex in-laws, I don’t know what we would have done, I wouldn’t have been able to pay rent because universal credit is crap. They have funded us to survive through lockdown so I’ve been really fortunate in that way but I’m quite bitter about having to sell my possession.”
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Anna has also retrained as a civil celebrant during the pandemic and written book titled Gone to Pot about escaping her abusive marriage in a bid to raise funds without business support.She told The Big Issue she will “see what happens” after Covid-19 restrictions lift in England on July 19, warning that she fears many of her customers may be “frightened” to return.
Anna is part of the ExcludedUK movement which claims to represent more than three million taxpayers left without support during the pandemic. An ExcludedUK spokesperson ensuring that everyone receives support is “necessary to rebuild the economy”.
Families already experiencing in-work poverty also saw rising deprivation during the pandemic but, like self-employed workers, matters have improved as restrictions lifted.
People from ethnic minority groups have been hit hardest, however, with the share of people reporting being behind on household bills remaining higher than pre-pandemic, up 15 per cent from 12 per cent.
Dora-Olivia Vicol, director of the employment justice charity Work Rights Centre, told The Big Issue many workers from ethnic minority backgrounds missed out on support due to precarious employment, such as agency workers or those on zero-hour contracts.
“Many others simply lost their jobs because their employers preferred to dismiss them, rather than to place them on furlough,” said Vicol. “We have seen this a lot, particularly in the case of small employers, and particularly in the case of workers who were on precarious contracts that offer no protections from dismissal.”
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Vicol added the pandemic showed more statutory protections are needed for workers in precarious roles. She said: “My only hope is that the government uses the hard lessons learnt during this pandemic to strengthen employment and social security protections, and make sure that when crises strike, they don’t strike the most vulnerable the hardest.”
But many workers and low-income families may still be facing a cliff edge.
With both the furlough scheme and the £20 universal credit increase set to disappear at the end of September as Covid-19 restrictions lift around, a difficult autumn could follow, according to the Joseph Rowntree Foundation.
“When politicians take bold action, as they did during the pandemic, we can see a really positive impact in protecting living standards and keeping families afloat,” said Rebecca McDonald, senior economist at JRF, which funded the report. “But we cannot build back better by choosing to return to a status quo in which rising reliance on food banks was the norm. The government can start by reversing the scheduled cut to universal credit in the autumn.”
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This Christmas, 3.8 million people across the UK will be facing extreme poverty. Thousands of those struggling will turn to selling the Big Issue as a vital source of income - they need your support to earn and lift themselves out of poverty.
