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

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. Supplementary Information: The online version contains supplementary material available at 10.1007/s10888-021-09491-w.

The impact of COVID-19 on households´ income in the EU.

This analysis makes use of economic forecasts for 2020 issued by the European Commission in Autumn 2019 and Spring 2020, and of a counterfactual under a no-policy change assumption, to analyse the impact of the COVID-19 crisis on EU households´ income. Additionally, our analysis assesses the cushioning effect of discretionary fiscal policy measures taken by the EU Member States. We find that the COVID-19 pandemic is likely to affect significantly households' disposable income in the EU, with lower income households being more severely hit. However, our results show that due to policy intervention, the impact of the crisis is expected to be similar to the one experienced during the 2008-2009 financial crisis. In detail, our results indicate that discretionary fiscal policy measures will play a significant cushioning role, reducing the size of the income loss (from -9.3% to -4.3% for the average equivalised disposable income), its regressivity and mitigating the poverty impact of the pandemic. We conclude that policy interventions are therefore instrumental in cushioning against the impact of the crisis on inequality and poverty. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1007/s10888-021-09485-8.