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Coronavirus: UK households face disposable income fall of £515 per month

·Finance and news reporter
·2 min read
House model on top of stack of money as growth of mortgage credit, Concept of property management. Invesment and Risk Management.
Changes in the labour market will prompt a 17% reduction in the earnings that households have available for spending. (Getty)

Monthly disposable incomes will fall by £14.3bn ($18bn) in the UK during the peak of the coronavirus pandemic, meaning that each household will have around £515 less available for essential spending, according to the Centre for Economics and Business Research (CEBR).

The analysis from the think tank suggests that changes in the labour market will prompt a 17% reduction in the earnings that households have available for spending in the second quarter of 2020.

The decline is a direct result of several factors, including the number of people who have become unemployed as a result of the crisis, the CEBR said.

Data released by the Department for Work and Pensions shows that there were around 950,000 universal credit applications in the final two weeks of March, which is almost 10 times more than usual.

Read more: UK furlough scheme flooded with 2,200 claims a minute

Meanwhile, the Office for Budget Responsibility has estimated that up to 2.1 million people could lose their jobs in the second quarter, with the brunt of the losses being experienced by lower-paid workers.

While benefits claims will replace some of the lost disposable incomes, it will not cover all of it, the CEBR said on Monday, noting that UK households will lose £1.5bn per month.

Without the government’s furlough scheme, the cost to households could easily be double that figure, according to the analysis.

Self-employed people and the nearly 4 million workers on flexible or zero-hours contracts have also been affected by the pandemic.

University of Cambridge research has shown that that workers with variable hours expect to earn only 59% of their usual income during the lockdown.

Read more: Richard Branson warns of Virgin Atlantic collapse without government loan

“The unprecedented scale of the crisis has led to an equally unparalleled response by governments and central banks around the world,” the CEBR said on Monday.

Nothing that the UK has an “established” welfare system, the CEBR said that the economic consequences of the lockdown would still be “painfully felt” by UK households.

“Therefore, a policy response to put cash into people’s pockets when the lockdown ends will be important to kick-start the economy,” it said.

“A temporary reduction in VAT, or stamp duty exemptions are policies that the government should be considering implementing at the end of the lockdown, to restart spending at the end of the crisis.”

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