Average incomes for richest and poorest fell during first year of lockdown

Income inequality fell slightly in the first year of coronavirus lockdown measures, as the average disposable incomes of the richest and poorest fifth of UK households both fell.

While the fifth richest households saw a reduction of £957 in their mean average household disposable income, the poorest fifth witnessed a corresponding reduction of £568, the Office for National Statistics (ONS) said.

While income inequality fell slightly, when comparing the financial year ending in 2020 with that ending in 2021, it remains in line with the average seen over the decade before the coronavirus pandemic, the ONS said.

For the poorest fifth of the population, the median average household income fell by 2% between the financial year (April to March) ending in 2020 and that ending in 2021, to reach about £14,600.

The richest fifth experienced a 1% drop in their median average income, to reach about £62,700.

The ONS said income falls for the poorest fifth of the population were somewhat offset by an increase in cash benefits, including the £20-per-week temporary uplift to universal credit.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Those on lower incomes were more likely to be furloughed (30% of the bottom fifth of households compared to 11% of the top).

“This was offset to some extent by a temporary improvement to benefits, but not enough to stop their situation getting worse and their financial resilience taking a severe hit.

“Meanwhile the cap on pandemic support schemes affected those on higher incomes.”

Ms Coles added: “The average incomes of the richest and poorest levelled down during the first year of the pandemic, and while everyone’s standard of living is going to plummet this year, it’s those on the lowest incomes who face the most impossible challenges.”

Myron Jobson, senior personal finance analyst at interactive investor, said: “There was a wide range of outcomes for UK households during the pandemic: some experienced a dramatic fall in income because of reduction in working hours or job losses; and some experienced the opposite and found themselves with more disposable income as the Covid lockdowns led to a reduction in spending on things like travelling to work.

“The figures come at a time of particular concern about household budgets amid the escalating cost of living.

“With the dust seemingly settling from the pandemic, prices have rocketed at their fastest rate in three decades – meaning that we are all paying more to heat our homes, to eat and to travel.

“When prices are on the rise, it is important to reassess your spending habits to get a better idea of the goods and services that are eating most into your and make the necessary adjustments to your current plan. If you don’t have a budget, now is a good time to start – and stick with it.”

A Government spokesman said: “We continue to provide extensive support to families, recognising the pressures people are facing with the cost of living and providing support worth £22 billion this financial year and next to help.

“This includes Universal Credit changes worth £1,000 extra on average for working families and an increase in national insurance thresholds.

“It also includes help for energy costs through a cut to fuel duty, our £9.1 billion energy rebate, and our recently doubled £1 billion household support fund, and on top of all this we’re raising the minimum wage to £9.50 an hour.”