'The pandemic has shown us the power of the state to intervene in hitherto unimaginable ways in supporting employees. But it has also shown us that the self-employed remain something of an inconvenient afterthought.'
'A year ago, there was every indication the pandemic would widen inequalities in employment and earnings between old and young, whites and ethnic minorities, men and women. That now looks less likely.'
The government’s furlough scheme ended on 30 September. In many ways it has been very successful, albeit at a cost of almost £70 billion so far. While unemployment has risen and employment fallen since the start of the pandemic, the changes are nowhere near as dramatic as the falls in national income. As the furlough scheme comes to an end, a number of labour market challenges remain. We examine these challenges in detail and draw out key lessons for policymakers.
In this chapter, we assess the NHS’s starting point, in terms of its funding, resources and performance on the eve of the pandemic. We then turn to the pandemic-related pressures on the NHS over the next few years, and assess the adequacy of the government’s latest funding announcement by comparing it with our assessments of the scale of NHS funding pressures.
In this report, we examine how the learning experiences of English school children evolved over the course of the first 12 months of disruption, from the beginning of the first lockdown in March 2020 until the end of the second period of school closures in March 2021.
This observation looks at how the numbers in England on the NHS waiting list changed before and during the pandemic and discusses the key factors that will affect how much they will grow in the near future.
As lockdowns are lifted and more economic activity is resumed, the extent, speed and nature of the UK’s economic recovery from the pandemic will be a crucial determinant of the Chancellor’s options at the upcoming Spending Review, expected this autumn.
But for a majority, families provide vital support when times get tough. The welfare state could not begin to operate without the care we provide for elderly parents, for disabled spouses, for sick children, as well as the financial support we provide each other when things go wrong.
The unwinding of the furlough scheme represents a step towards ‘normality’ in the labour market, but it also will mean big income losses for many of those who end up unemployed unless they are swiftly able to find alternative employment. In this observation we discuss the kind of support available for such workers via other programmes, and what sort of hit to their income they might see if they do lose their jobs.
In new research published today, data from the English Longitudinal Study of Ageing COVID-19 Substudy were used to examine the perceptions of people in their late 50s and over, in terms of the effect of the crisis on both their current income and wealth, and on their future retirement incomes.
'The power of the Treasury needs constant challenge and scrutiny, but in the end, it needs to play its role in challenging and scrutinising the rest of government. It needs to be unpopular.' Paul Johnson in The Times on the Treasury's role in last week's decisions on education spending.
In this briefing note, we use administrative hospital data from across the NHS in England to describe how the use of inpatient (elective and emergency) and outpatient hospital care in 2020 compared with that in the previous year.
While there is still much uncertainty, we now project Scotland’s budget deficit in 2020–21 to have spiked at between 22% and 25% of national income, up from 8.6% of national income in 2019–20, although less than our previous projection. It is also still higher than a forecast deficit of 16% of national income for the UK as a whole for the same year.
This morning the ONS published its first estimates of the public finances over the whole of the financial year 2020-21. Borrowing is estimated to have reached £303 billion, or 14.5% of national income. This is £52 billion less than the £355 billion forecast by the Office for Budget Responsibility at the Budget in early March. However, it is a staggering £248 billion, or 12.1% of national income, higher than forecast just before the financial year began – and more to the point, just prior to the economic impact of Covid-19 started to be felt in the UK – in March 2020.
It remains to be seen whether we will get back to spending 0.7 per cent of national income on overseas aid. My guess is that there are no serious plans to do so. If there are, then it is incumbent on government to tell us when and how that will happen and especially important to plan any big uplift carefully and well in advance.
Today, the Department for Work and Pensions released the latest official statistics on household incomes, poverty, and income inequality. This observation looks at the key findings from those statistics.
This report seeks to set out the potential effects of the Covid-19 pandemic on inequalities in the UK. The pandemic has affected inequalities in education, training, wages, employment and health, including how these vary by gender, ethnicity, and across generations.
The COVID-19 crisis has both created billions of pounds of new costs for and demands on councils’ budgets and has hit many of their sources of income. We find that across the sector as a whole, the government has largely addressed forecast pressures in 2020-21. However, financial pressures have been, and will continue to be, uneven across councils. As a result, underlying the aggregate picture, many councils still face at least some shortfall this year – particularly among shire districts.
It’s easy enough to see the politics behind Rishi Sunak’s tax increase of choice. Opaque, in the future, jam today, well-hidden pain tomorrow. The scale of the increase, though, makes the economics more concerning. Not only is he unlikely to get as much revenue as he’s banking on, he risks reducing investment levels and hence wages and living standards over the long run.
'Sunak’s conference promise that he will always balance the books was, to be generous, no more than a rhetorical flourish. What he is actually aiming for and by when we do not know. This week’s budget is his chance to give us a real sense of who he is and where he wants to go.' Paul Johnson in The Times.
In this briefing note, we update and extend previous IFS analysis, to consider how employment, incomes, benefit claims and council tax payments have evolved over a longer period and have varied geographically, and draw out key implications for local government.
By the time the pandemic is over, most children across the UK will have missed over half a year of normal, in-person schooling. This observation sets out the economic case for a massive national plan to address this crisis.
The temporary £20 per week increase in Universal Credit and Working Tax Credit enacted at the start of the pandemic is due to expire at the end of March. Some campaigners have called for it to be extended for another year or made permanent, while the government are said to be considering instead a £500 one off bonus to benefit recipients.
A year and a half ago we launched the IFS Deaton Review of Inequalities. When we did so, the chair of the Review, Nobel Laureate Sir Angus Deaton, raised the possibility that inequalities may prove a threat to our economic, social and political systems unless they are tackled effectively.
Rishi Sunak will have a host of tough choices and trade-offs to make as he steers the economy and the public finances into calmer waters. At the very least, the chancellor needs to avoid exacerbating these inequities further, as his predecessors often did. That means looking at tax and spending decisions according to how they affect those with wealth, and those without.
On Thursday, the government set out its plans for council funding in England next year. In this briefing note we examine plans for both core funding and top-ups for ongoing COVID-19 related costs, and look at some of the issues looming beyond next year.
Last week, the IFS published research on how the impact of the COVID-19 crisis on consumer spending and behaviour has varied across the country. In a new observation, we consider the implications of this research for local government.
It’s spending review week. The chancellor has postponed the budget and decided not to have a full three-year spending review, but Rishi Sunak nevertheless will be delivering yet another big statement on Wednesday, setting spending levels for next year. That’s the idea, anyway.
The 2020 Spending Review, due to conclude on 25 November, will not be the comprehensive, multi-year review we were originally promised. Instead, the Chancellor has decided to set plans for 2021−22 only – a sensible decision in the circumstances. But while this Spending Review might be more short-term in its nature than usual, it will still contain important announcements.
In our annual series of reports on education spending, funded by the Nuffield Foundation, we bring together data on education spending per student across the life cycle and provide analysis about the major issues facing different sectors.
The measures taken to help reduce the spread of COVID-19, resulting from both policy and consumers’ changes in behaviour, have had major impacts on consumer spending patterns. In this briefing note, we explore how consumer spending has evolved, both during lockdown and in the recovery phase since.
Last week saw significant political debate about the amount of extra funding being given to English councils moving into tier 3 (‘very high alert’) of the government’s COVID alert system. Most of the attention focused on funding to help pay for additional business support measures – such as grants for businesses legally able to open but facing big falls in demand – on top of those being funded directly by central government.
The last few days have seen free school meals in England rocket to the front of the papers, as many MPs, campaign groups and businesses have lined up behind Marcus Rashford’s proposals to extend free school meal vouchers through the school holidays until Easter next year. While the motion was defeated last week, the Labour party has promised to bring the motion again – and several Conservative MPs have already indicated that it may receive a more sympathetic hearing the second time around.
In this briefing note, we use comprehensive real-time data on grocery purchases and prices in Great Britain to show how inflation and promotional activity has evolved up until the beginning of August 2020.
Figures out today from the ONS show that headline inflation over the year to September was just 0.5%. With earlier figures showing a fall in earnings of 1% this means that under the “triple lock” next April would see the basic state pension and new state pension both increase by 2½%. This would bring the increase in the basic state pension over the last eleven years up to 41%, compared to 25% if it had been indexed in line with inflation or by 22% if it had been indexed in line with earnings.
The COVID-19 outbreak and the policy response to it have not just dominated the economic and fiscal developments in 2020 so far; they also set the starting point for the rest of the year and 2021. As long as the virus remains a significant health threat – with no vaccine and no highly effective treatment – the situation remains too volatile to provide a definitive assessment of the global economic impact.
The UK faces a long road to economic recovery in the wake of the COVID-19 pandemic. In this chapter, we consider the near-term outlook in depth. Lockdown measures implemented in response to COVID-19 slashed nearly two decades of growth from the UK economy in March and April of this year. Since then, the economy has rebounded strongly on the back of the return of capacity and high levels of policy support.
All indications point to only a thin trade deal (if any) with the European Union after the Brexit transition period ends in December. Despite over four years passing since the referendum, many of the associated economic costs still likely lie ahead. The shock from Brexit will affect different sectors from the COVID shock, meaning that Brexit is likely to cause additional economic pain even as the economy recovers from the virus-driven downturn.
The COVID-19 pandemic and the public health measures implemented to contain it will lead to a huge spike in government borrowing this year. We forecast the deficit to climb to £350 billion (17% of GDP) in 2020–21, more than six times the level forecast just seven months ago at the March Budget. Around two-thirds of this increase comes from the large packages of tax cuts and spending increases that the government has introduced in response to the pandemic. But underlying economic weakness will add close to £100 billion to the deficit this year – 1.7 times the total forecast for the deficit as of March.
The COVID-19 crisis has pushed up government borrowing substantially, meaning that the Debt Management Office will need to sell a much larger value of gilts than normal. In our central scenario, we forecast the total amount to exceed £1.5 trillion, more than double the Budget forecast in March. While there is tremendous uncertainty around this figure, the total value will easily be the highest in recent history outside of the two world wars.
Choices over benefits policy are never easy. There are unavoidable trade-offs between cost, generosity and incentives. This year offers an opportunity to improve what we’ve got and to make a conscious choice over how generous we want the system to be.
The COVID-19 crisis has led to a profound shock to the labour market, one consequence of which is a rising number of claimants of means-tested benefits and higher entitlements among existing claimants.
This paper explores the challenges and constraints around fiscal stimulus measures in lower-income countries, and in the context of a global pandemic, and puts forward tax, transfer and other government spending options that offer potential for success.
This government has pushed geographic inequalities to the top of the policy agenda. In his very first speech as Prime Minister, Boris Johnson made clear his intent to boost economic performance outside of London and the South East, to ‘level up’ across the country and to revive the fortunes of the UK’s ‘left-behind’ towns and cities.
As for phase four, the return to normality, Mr Sunak needs to learn one big lesson from policy in the wake of the financial crisis. From 2010 on that policy was dominated by the desire to reduce the deficit. But it lacked a crucial second leg: an actual economic strategy focused on productivity, growth and economic success. Phase four must not just be about getting the huge deficit down. It must involve a smart economic strategy for infrastructure investment, education, economic governance, tax reform and more besides.
The COVID-19 crisis is having immediate effects on councils’ budgets as a result of increases in spending on local services and reductions in income from sales, fees and charges and commercial activities.
The COVID-19 school closures forced children and parents to make unprecedented changes to their daily routines. Including the summer holidays, most children will have had a five-and-a-half-month break from physically attending school by the time they returned in September.
The closures of childcare providers to most families during the COVID-19 crisis have underlined the importance of access to childcare, both to support paid work and to help shape young children’s environment.
We analyze how shutdown policies affected unemployment during the COVID-19 pandemic. We use proxy data from Google Trends to disentangle the effects of six policies. State-level policies caused 12.4% of unemployment insurance claims early on. Restaurant limits and non-essential business closures had modest effects. Other policies (e.g. stay-at-home orders, school closures) had no additional effect.
In this observation, we use data from an online survey of parents with school-aged children – funded by the Nuffield Foundation and collected during June and July 2020 – to document the patchwork of in-person schooling that children had before the summer. We also explore parents’ concerns about sending their children back to school at the end of the last term.
We characterize inflation dynamics during the Great Lockdown using scanner data covering millions of transactions for fast-moving consumer goods in the United Kingdom. We show that there was a significant and widespread spike in inflation.
In this report, we use a novel source of real-time data on households’ finances from Money Dashboard, a budgeting app, to explore the impacts of the crisis so far on earnings, incomes and financial distress, and how they are evolving. We complement this with household survey data to explain and verify the key trends.
Reports indicate the government is considering a temporary cut in VAT to stimulate consumer demand, possibly targeted at sectors such as tourism and restaurants. Overall the case for a temporary VAT cut now is mixed. It could provide an important fillip to consumer demand if implemented under the right conditions. Its expiration must be carefully timed so as not to choke off a nascent recovery.
This report looks at the extent to which these risks vary and the degree to which they are correlated, focusing on LAs’ revenues and financial resilience. It also briefly discusses the extra funding that central government has made available to them to help them address these risks in the current financial year.
The COVID-19 crisis has affected every part of the country – and indeed many other countries. What sets this crisis apart is the many different ways that it is impacting families: while the virus itself is primarily a public health issue, the unprecedented responses it has necessitated mean that this is also very much an economic and a social crisis.
The COVID-19 crisis has caused drastic changes to most parents’ work lives and other responsibilities. Millions of adults have lost or are forecast to lose their jobs permanently; many more have stopped work temporarily. Others are newly working from home, while many key workers are experiencing additional pressures and risks in their work. For most parents, school and childcare closures have meant that children are at home, and requiring care, for at least an extra six hours a day.
The Coronavirus Job Retention Scheme (CJRS) covers 80% of employees’ usual salaries, up to a cap of £2,500 a month, while they are furloughed. From August it will also provide support for employees who return from furlough but work reduced hours. This Briefing Note considers the implications of that change and how it might work.
This morning, the ONS published its monthly public finance release for April, giving us an initial snapshot of the public finances under lockdown. It throws the enormous impact of the restrictions on the public finances into sharp relief.
This report looks at normal (pre-lockdown) commuting patterns, what they tell us about who would be affected by continued social distancing on public transport, and what they tell us about how policy can ease public transport congestion in a world of continued social distancing.
On Tuesday (12 May 2020) the Chancellor, Rishi Sunak, announced an extension to the Coronavirus Job Retention Scheme (CJRS), which covers 80% of employees’ usual salaries, up to a cap of £2,500 a month, while they are furloughed.
This brief addresses the fiscal response to the coronavirus pandemic, arguing that governments could make use of the opportunities this shock provides to make changes to tax systems now that might be politically difficult later.
The coronavirus outbreak and associated containment measures have caused huge economic fallout across the world. The sharp decline in economic activity that is now occurring will depress government revenues and push up public spending. In addition, governments have, appropriately, responded with packages of fiscal measures that will help support households, businesses and public services through these challenging times and limit the long-run damage done by the crisis. But these measures will also have the direct impact of adding considerably more to government borrowing.
The COVID-19 pandemic has led to unprecedented social distancing measures around the world to contain the spread of the virus. The UK has, like many countries, effectively closed down entire sectors of its economy and severely limited activity in many other sectors. This curtailing of activity is likely to lead to a sharp recession.
UK households hold around £230bn of unsecured or consumer debt – including loans, credit card debt, hire purchase agreements and overdrafts. This equates to an average £8,000 per household. The bulk of that debt is held by those on relatively high incomes and in normal times its repayment tends not to cause financial difficulties. But in a minority of cases, debts can put stress on households’ budgets with consequences for living standards and mental health.
The coronavirus pandemic, and the measures put in place to combat it, have changed almost everything about how people live their day-to-day lives. More than ever before, life today is being conducted behind the nation’s front doors.
The spread of COVID-19 has led to sweeping changes in the way households work, spend their time and shop. This has led to large changes in spending patterns and, in some cases, rapid price changes. How will changes such as these be reflected in headline inflation measures such as the Consumer Prices Index (CPI)?
This paper discusses likely implications for healthcare delivery in the short and medium term of the responses to the coronavirus pandemic, focusing primarily on the implications for non‐coronavirus patients.
On the eve of the economic crisis caused by the public health response to coronavirus, around 76,000 working-age families were subject to the benefit cap. The cap means that most of these families, and some of those who have since lost employment during the crisis won’t benefit at all from the temporary increases in benefits announced by the Chancellor. The cap provides a strong financial incentive for families to move into paid work or to move to cheaper housing; but this is less important, and in many cases undesirable, at the present time. Raising or removing the cap so that all working age benefit recipients can benefit from the temporary increase in support would make sense, at least while the current social distancing requirements are in place.
The coronavirus pandemic is a public health crisis and global economic shock increasingly affecting lower-income countries around the world – external finance from international institutions and development partners can help plug financing gaps, but may become stretched as many countries around the world seek assistance.
The Chancellor has introduced workable and generous income protection schemes for most employees and self-employed people that lose work as a result of coronavirus. But there are some groups who have seen no increase in protection.
An important part of the UK policy response to the COVID-19 pandemic has been to try to help ensure key workers with children have access to sufficient childcare. Children of key workers are allowed to continue attending school and childcare settings, and both schools and early years providers are working to ensure wraparound care outside of school hours. Non-working partners, or those working from home, are also expected to provide childcare for key workers in some families.
Short-time work is a subsidy for temporary reductions in the number of hours worked in firms affected by temporary shocks. Evidence suggests that it can have large positive effects on employment and can be more effective than unemployment insurance or universal transfers. This column discusses how the COVID-19 crisis – with its mandated reduction in hours of work and massive liquidity crunch for firms – is a textbook case for the use of short-time work. Taking into account available evidence and the current situation, it proposes guidelines to effectively implement short-term work.
The Debt Management Office announced yesterday that in order to finance the Government’s response to the Covid-19 outbreak it intends to auction £45 billion of gilts this month. This would be a record. It is highly likely that the amount that needs to be raised over the new financial year will be the highest, as a share of national income, since 2009–10 and it could even exceed that peak. With an increasing amount of gilts set to be bought by the Bank of England the public finances will in future be even more exposed to changes in short-term interest rates.
By the time the coronavirus lockdown ends, the government's choices "will be utterly different" to when it took office, writes Paul Johnson. "How it makes those choices could prove even more important than the immediate response to the crisis."
With no vaccination available, scientists recommend non-pharmaceutical interventions – in particular, handwashing, social distancing, and the shielding of elderly and vulnerable groups – as the only feasible way of suppressing the spread of COVID-19, and lessening its mortality rate. Such measures, when extensively and strictly enforced, appear to have been effective in stemming the spread of the virus in South Korea and China, and there are promising early signs of their effectiveness in Italy too.
The coronavirus pandemic is first and foremost a public health crisis. But it also represents a large and systemic economic shock, with massive effects on both the supply and demand sides of the economy.
The spread of COVID-19, and international measures to contain it, are having a major impact on economic activity in the UK. In this observation we describe how this impact has varied across industries using data on share prices of firms listed on the London Stock Exchange, and how well targeted government support for workers and companies is in light of this.
Today (26 March 2020) the Chancellor announced new, very generous support for the self-employed. Those who earn the majority of their income from self-employment and who had average profits of no more than £50,000 over the last three years will be eligible for a taxable grant equal to 80% of the average profits they reported across the three years from April 2016 to April 2019, up to a cap of £2,500 per month, if they report that their income has been negatively impacted as a result of coronavirus.
Isabel Stockton, a research economist at the Institute for Fiscal Studies, said: “The response to the covid-19 pandemic has led to a sharp downturn in economic activity. It has also, rightly, prompted a substantial fiscal policy response, the cost of which will add directly to government borrowing.
Over the past decade employment has grown very strongly, from 29 million to 33 million in work (70% and 76% of the working age population). At the same time wages have grown at historically slow rates.
This brief addresses the fiscal response to the coronavirus pandemic, arguing that governments could make use of the opportunities this shock provides to make changes to tax systems now that might be politically difficult later.
As a consequence of missing data on tests for infection and imperfect accuracy of tests, reported rates of cumulative population infection by the SARS CoV-2 virus are lower than actual rates of infection.