Working age households have experienced the biggest immediate shock to their incomes in nearly half a century, according to a think tank.
The coronavirus crisis has triggered a 4.5% fall in typical working age household incomes, the Resolution Foundation said.
It calculated the fall by comparing the months leading up to the crisis with the situation in May this year.
According to the Foundation’s Living Standards Audit, this was the biggest short-term income drop since the oil crisis-induced inflation spikes of the mid-1970s.
Government support has cushioned the shock for millions of people, but the report warned that further income shocks could be on the horizon.
It said that, without Government intervention to strengthen the social security safety net, the incomes of the poorest fifth of households could have fallen by as much as 8%.
The Foundation said that a further income shock could be due next year if the Government proceeds with plans to withdraw the recent increase in the generosity of Universal Credit.
The Government's unprecedented policy response has played a critical role so far in protecting millions of households, and particularly the poorest, from the worst of the crisis. But for many the threat of further income falls looms largeAdam Corlett, Resolution Foundation
Allowing it to expire next April would delay hopes of a post-Covid-19 living standards recovery for millions of low-to-middle income households, the Foundation argued.
The Foundation focuses on improving the living standards of those on low-to-middle incomes.
It said the coronavirus crisis had come on top of a poor decade for income growth, particularly for low income households and the young.
The 2010s was a “disastrous decade for living standards”, the report said, starting in the aftermath of the previous financial crisis, and with a post-Brexit referendum inflation spike holding back real incomes in the later part of the decade.
Adam Corlett, senior economist at the Resolution Foundation, said: “Living standards across Britain stagnated in the years running up to the crisis, and fell for the poorest families.
“That stagnation has now given way to the biggest immediate income shock since the mid-1970s, as Britain’s economy – and much of its workforce – went into lockdown.
“The Government’s unprecedented policy response has played a critical role so far in protecting millions of households, and particularly the poorest, from the worst of the crisis. But for many the threat of further income falls looms large.
“The phasing out of the Job Retention Scheme means much larger rises in unemployment are ahead of us, and these are likely to be concentrated among lower-income households. And withdrawing increases in Universal Credit next April, when this crisis will be far from over, will leave over six million households facing a further income loss of over £1,000.
“This initial phase of the crisis has shown us the importance of bold job support and a stronger social security safety net. The Government should keep both those lessons front of mind as it navigates the next phase of the crisis.”
A Government spokesman said: “This Government has implemented an ambitious package of measures to support those affected by Covid-19, including the coronavirus job retention scheme and the self-employment income support scheme. This is alongside making statutory sick pay available from day one.
“We know some people are struggling in these unprecedented times, which is why we have increased Universal Credit and Working Tax Credit by up to £1,040 a year, raised Local Housing Allowance rates and introduced mortgage holidays – a package of support amounting to £9.3 billion this year.
“This builds on action already taken to support low-paid families such as by raising the living wage, increasing the tax-free allowance and uplifting benefits by inflation.”