Did the UK policy response to Covid-19 protect household incomes?

Mike Brewer and Iva Tasseva

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We analyse the UK policy response to Covid-19 and its impact on household incomes in the UK in April and May 2020, using microsimulation methods. We estimate that households lost a substantial share of their net income of 6.9% on average. But policies protected household incomes to a substantial degree: compared to the drop in net income, GDP per capita fell by 18.9% between the first and second quarter of 2020. Earnings subsidies (the Coronavirus Job Retention Scheme) protected household finances and provided the main insurance mechanism during the crisis. Besides subsidies, Covid-related increases to state benefits, as well as the automatic stabilisers in the tax and benefit system, played an important role in mitigating the income losses. However, analysing the impact of a near-decade of austerity on the UK safety net, we find that, compared to 2011 policies, the 2020 pre-Covid tax-benefit policies would have been less effective in insuring incomes against the shocks. We also assess the potential distributional impact of introducing a Universal Basic Income (UBI) instead of the Covid emergency measures and find that a UBI would have supported the incomes of different vulnerable groups but would have provided less protection to those hit hardest by the labour market shocks.

Keywords: Covid-19; coronavirus; earnings subsidies and tax-benefit policies; income distribution (search for similar items in EconPapers)
JEL-codes: D31 E24 H24 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2021-09-01
New Economics Papers: this item is included in nep-ias, nep-isf and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

Published in Journal of Economic Inequality, 1, September, 2021, 19(3), pp. 433 - 458. ISSN: 1569-1721

Downloads: (external link)
http://eprints.lse.ac.uk/110512/ Open access version. (application/pdf)

Related works:
Journal Article: Did the UK policy response to Covid-19 protect household incomes? (2021)
Working Paper: Did the UK policy response to Covid-19 protect household incomes? (2020)
Working Paper: Did the UK policy response to Covid-19 protect household incomes? (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:110512

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().