Poverty in London, before and during the Covid-19 pandemic

What you need to know:

  • The poverty rate in London rose to a peak of 29% in the second quarter of 2020, as the impacts of furlough and job losses hit the capital harder than any other part of the UK;
  • The labour-market impact of the pandemic increased the number of people living in poverty in London by 230,000 in the second quarter of 2020.
  • The £20 uplift to Universal Credit shielded 130,000 Londoners from poverty in the second quarter of 2020.
  • 17% of Londoners live in persistent poverty, compared to 12% of people outside the capital.

This report by the Legatum Institute, funded by Trust for London, explores the nature and extent of poverty in London both before and during the pandemic. The analysis is based on the Social Metrics Commission's framework for poverty measurement, which aims to be more comprehensive and accurate. The report finds that with London already having the highest poverty rate of any region, the pandemic is likely to have pressed Londoners further into deep poverty, living with less for longer.

Poverty before the pandemic

London has long faced the highest poverty rate of any region or nation of the UK. Londoners who live in poverty are more likely to live in deep poverty, and are more likely to have experienced poverty over a longer period of time. They are more likely to be in work, with high housing costs acting as a key driver of poverty. Under the SMC framework, poverty depth and poverty persistence are analysed together to create a more complete picture of families’ experience of poverty. This analysis makes clear that Londoners are more likely than those in the rest of the UK to experience the most severe forms of poverty.

Lived Experience Indicators, considered alongside poverty depth and persistence, show a mixed picture. Compared to those in poverty in the rest of the UK, Londoners in poverty are more likely to struggle with their family finances and are less satisfied with their health outcomes, but have better qualifications and are less likely to be workless. London faces demonstrably acute challenges around poverty. These challenges are longstanding. Addressing them will require an understanding of how the lived experience of poverty in London differs from that in the rest of the UK

Poverty during the pandemic

The whole country has experienced the profound economic, social and health impacts of the coronavirus pandemic. Existing evidence shows that London was particularly hard hit. For example, the capital saw a greater and more sustained fall in employment, and furlough rates stayed higher for longer. To understand the impacts that this pattern might have had on poverty in the capital, this report creates nowcasts and projections of poverty through the course of the pandemic to Q2 2022. This is necessary because the most recent survey data only allows Government to calculate poverty rates up to the 2019-20 financial year.

Our results suggest that London’s poverty rate was broadly flat over the course of the pandemic. This flat picture obscures the differential impact of labour market changes and the response of the Government. In particular, we show that the poverty impact of coronavirus-related changes to the labour market is partially alleviated, and then in Q2 2022 entirely offset, by the government’s changes to the benefit system .

There is considerable uncertainty as to the likely path of poverty from Q2 2022 onwards, with families facing the most significant rising costs seen in recent times, against the backdrop of reforms to Universal Credit and increases in the National Living Wage. What is clear is that long-term challenges facing those in poverty in London are still in place as we start to exit the coronavirus pandemic. Tackling this should be a key focus of policymakers in London and nationally.

The Social Metrics Commission's poverty measure

The SMC was founded in 2016 to develop a new approach to poverty measurement. In response to the fact that the UK no longer had an official measure of poverty for children, adults or pensioners, its ambition was to develop metrics that both better reflected the nature and experiences of poverty that different families in the UK have, and which could be used to build a consensus around poverty measurement and action in the UK. The Commission’s measure included improvements in three key areas:

  1. Identifying those least able to make ends meet. The Commission’s measure: Accounted for all material resources, not just incomes. For instance, this meant including an assessment of the available liquid assets that families have; Accounted for the inescapable costs that some families face, which make them more likely than others to experience poverty. These include the extra costs of disability, costs of childcare and rental and mortgage costs; and Broadened the approach of poverty measurement to include an assessment of overcrowding in housing and those sleeping rough.
  2. Providing a better understanding of the nature of poverty, by presenting detailed analysis of poverty depth and persistence for those in poverty.
  3. Providing an assessment of Lived Experience Indicators that shine a light on the differences in experiences of those living in poverty and those above the poverty line.

09 May 2022