Abrupt falls in employment, earnings and incomes seen in April after lockdown showed no signs of unwinding in May. Meanwhile, non-payment of household bills, which had already increased sharply after lockdown, increased further between April and May – suggesting that some households are increasingly struggling to make ends meet as the crisis persists. These are among the conclusions of new IFS research, funded by the Standard Life Foundation, using real-time bank account data from budgeting app Money Dashboard.
By May 2020, when compared with what we would have predicted just before the crisis hit based on trends up to that point:
- The number of jobs was 4% lower, median after-tax household earnings were 9% lower and median household income (including benefits) was 8% lower: a monthly income loss equivalent to roughly £160. This is largely the result of abrupt falls in April – but with little or no signs of recovery in May.
- Numbers of mortgage, rental and council tax payments were, respectively, 14%, 11% and 9% lower. This represents a further deterioration since April, suggesting that some households were increasingly struggling to make ends meet as the crisis persisted.
Other key findings include:
- The poorest fifth of households, based on pre-crisis income, have been hit harder than other groups in the labour market. Between January and May, their average (median) monthly earnings fell by around 15%, or £160, compared with around 4–5% for higher income households. (Note that earnings include those covered by the government through the furlough scheme.) This primarily represents a combination of job losses, reduced hours of work, being furloughed on less than full pay, and falls in income for the self-employed.
- In contrast, if we look at total income rather than just earnings, the poorest have not fallen further behind on average. This highlights the crucial role that benefits are playing in containing inequality and poverty. It partly reflects the government’s temporary increases in benefits – set to last until next April – and partly the simple fact that the benefits system replaces a relatively large share of lost earnings for the lowest earners.
- The increased non-payment of bills means substantial additional household debt being carried forward (even where non-payments are the result of holidays on mortgages). Of those who paid a given bill in January but did not pay it in May, the average January payment was £1,660 for mortgages, £650 for rent, £170 for council tax and £139 for utilities.
- Non-payment of bills is more concentrated among poorer households. Lower-income households are more likely to be falling behind with council tax and utility bill payments, while non-payment of mortgages has been more evenly spread.
Isaac Delestre, a Research Economist at IFS and an author of the research, said:
"Earnings have been hit very hard for those who came into the crisis with the fewest resources. The picture has been much more even so far when we consider total income, rather than just earnings, which highlights the crucial reliance we now have on our benefits system to contain poverty and inequality."
"This still provides plenty to worry about for the lowest-income households in the longer term: not least given the career disruption they are experiencing and the fact that temporary increases to benefits made during the crisis are set to expire next spring. In addition, we see rises in non-payment of bills – especially among poorer households – and this worsened further in May. These represent substantial additional debts being carried forward. All this underlines the crucial importance of securing a labour market recovery that is as swift as possible, compatible with public health requirements."
Mubin Haq, Chief Executive of Standard Life Foundation, funders of the research, said:
"The Government’s economic response to the pandemic shows bold action can make a big difference to many of those struggling to make ends meet. As debts build up and a jobs crisis looms, we need to see further swift and decisive action. Our safety net has had some emergency repairs but it still has a number of holes which many are slipping through."