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

Brewer, Mike and Tasseva, Iva ORCID: 0000-0003-3302-8918 (2021) Did the UK policy response to Covid-19 protect household incomes? Journal of Economic Inequality. ISSN 1569-1721

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Identification Number: 10.1007/s10888-021-09491-w

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.

Item Type: Article
Official URL: https://www.springer.com/journal/10888
Additional Information: © 2021 The Authors
Divisions: Social Policy
Subjects: J Political Science > JN Political institutions (Europe) > JN101 Great Britain
H Social Sciences > HB Economic Theory
R Medicine > RA Public aspects of medicine > RA0421 Public health. Hygiene. Preventive Medicine
H Social Sciences > HV Social pathology. Social and public welfare. Criminology
JEL classification: D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E24 - Macroeconomics: Employment; Unemployment; Wages; Intergenerational Income Distribution (includes wage indexation)
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies
Date Deposited: 20 May 2021 11:06
Last Modified: 03 Sep 2021 10:09
URI: http://eprints.lse.ac.uk/id/eprint/110512

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