UK Regional Outlook: Autumn 2021

Arnab Bhattacharjee, Adrian Pabst, Tibor Szendrei, Andrew Aitken (), Larissa Marioni, Ana Rincon Aznar () and Manuel Tong ()

National Institute UK Economic Outlook, 2021, issue 4, 33-40

Abstract: We forecast a widening of regional disparities between the metropolitan South East and other UK regions, and a squeeze on the income of the poorest households resulting in a doubling of destitution. A marked slowdown in economic growth to less than 1.5 per cent on average per year in 2023-26, combined with continued supply chain disruptions and uncertainty over the Brexit deal, will exacerbate interregional inequalities, notably in Northern Ireland and parts of the South East (e.g. Dover port) and the Midlands (e.g. haulage and warehouses). The sharp rise in prices (food, petrol and energy) will disproportionately affect low-income households concentrated in some of the most deprived parts of the country, such as the North West and Northern Ireland. Relative to a counterfactual economy without Covid-19 and Brexit, household incomes in the lowest decile in 2022-23 would be about 23 per cent lower, while supported by welfare, the consumption of these poor households would be 11 per cent lower. Withdrawing the Universal Credit (UC) uplift worth U+00A320 per week at the end of October 2021 will leave the poorest households worse off, in particular those close to the destitution margin which are concentrated in the North (especially the North West), in Northern Ireland as well as in parts of London and the South East. Since the UC uplift accounted for less than only 5 per cent of the welfare budget, we think that the withdrawal was both untimely and unnecessary. The uplift should either be reinstated or higher destitution should be mitigated by a new policy. Box E shows that the UC uplift, while small compared to the large impact of the Covid-19 shock, provided some respite to the poorest households - supporting consumption particularly in the bottom decile. It also brought some spill-over benefits to the households not in destitution but still very poor. Reducing the UC taper rate from 63 per cent to 55 per cent benefits a different cohort and is not a substitute for this policy. However, higher welfare payments are not a long-term solution to poverty. There needs to be better policy to support local firms in creating better jobs and providing the skills that are needed. These are some of the biggest tasks in relation to regional regeneration.

Date: 2021
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Journal Article: UK Regional Outlook: Autumn 2021 (2022)
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