Government decision on whether to keep the universal credit ‘uplift’ could determine the inequality story of the whole parliament

Living standards hit from the Covid-19 crisis is ahead, rather than behind us, says the Resolution Foundation

The government's imminent decision on whether to keep the 'uplift' to universal credit could determine the inequality story of the whole parliament, the Resolution Foundation has said.

In a new report, the Resolution Foundation combines analysis of Office for Budget Responsibility scenarios, along with current tax and benefits policy, to offer a comprehensive forecast for living standards growth across the income distribution over the next 12 months and the remainder of the parliament. The analysis highlight that, despite the UK having experienced a huge economic contraction in 2020, many households have been protected from its impact by unprecedented government support, including the £63 billion Job Retention Scheme and the £6 billion uplift to universal credit and working tax credit.

However, the Resolution Foundation says that, just as government support has protected many incomes during the pandemic so far, the withdrawal of support from Spring 2021 onwards, along with rising unemployment, means that typical household incomes are on course to fall next year. The withdrawal of the £20 a week uplift to universal credit from April 2021 will lead to a particularly tough year for low-income households, the Resolution Foundation says, with real incomes falling by more than 4 per cent in 2021/2022, and would drive up relative poverty from its current estimated level of 21 per cent to 23 per cent by 2024/2025, with a further 820,000 children falling into poverty.

As a result, the Resolution Foundation says that the government's decision on whether to keep the uplift won’t just determine whether millions of households are able to enjoy a living standards recovery this year, but could determine the inequality story of the whole parliament.

Karl Handscomb, Senior Economist at the Resolution Foundation, said -

'The living standards hit from the Covid-19 crisis is ahead, rather than behind us. Unemployment is set to rise, and over six million households are on course to lose over £1,000 if universal credit is cut.

The living standards outlook for 2021 looks bleak at present - but the government can directly improve it.

Deciding if the £20 a week uplift to universal credit should be extended will determine whether millions of households are able to enjoy any sort of living standards recovery next year. And looking further ahead, the decision on whether to keep the universal credit boost will help define whether this is to be a parliament of ‘levelling up’ living standards, or pushing up poverty.'

For more information, see Living standards hit from Covid-19 crisis is ahead, rather than behind us.