This update, by Robert Joyce at the IFS, draws heavily on ‘The IFS Deaton Review of Inequalities: a new year's message', which can be found at www.ifs.org.uk/inequality.

A year and a half ago, the Institute for Fiscal Studies launched the Deaton Review of Inequalities, chaired by Nobel Laureate Sir Angus Deaton. It is the most ambitious study of its kind yet attempted. We argued, among other things, that we lacked a coherent understanding of how key forms of inequality relate to each other: like inequalities in health, income, wealth, educational opportunity and family life, and gaps between rich and poor, different parts of the country, different ethnic groups and different genders. And while many drivers of inequality are studied in great depth individually (whether it be market power, labour market institutions, redistributive policy, technology or political economy), there is a real need to bring these together if we are to work towards a coherent mix of policy solutions — and to do so not only within economics but while drawing on insights from across the social sciences. As we launched, Professor Deaton raised the possibility that inequalities may prove a threat to our economic, social and political systems unless we do rise to the challenge of tackling them effectively.

Since then the world has changed more than we could have imagined. And yet Covid-19 seems to have shone a light on many of the issues we raised pre-pandemic, more vividly than we ever could have. It has cruelly exposed huge variations in how easily we are able to weather threats to livelihoods, to educational progress, to physical and mental health. These disparities have been closely correlated with pre-existing inequalities between groups according to their education, income, location, and ethnicity — in ways that are often hard to disentangle, but depressingly familiar. At the same time public policy responses have been of a type and magnitude previously unimaginable. The shape and scale of these responses reflect the severity of the crisis and cannot be sustained, but they illustrate the power of governments to intervene to shape and mitigate inequalities. They surely provide succour to those who believe that the inequalities we saw before the crisis struck were not immutable.

2021 will be a key year for the Review. We will be publishing a huge amount of material from its major evidence-gathering phase which has been ongoing since late 2019, involving dozens of leading experts from economics and other social sciences from around the world. We will span topics from public attitudes towards inequality to inequalities in income, health and political inclusion, to inequalities by geography, gender and ethnicity, to the role of firms, trade, migration, labour market institutions, tax and transfer policy and much more besides. The aim will then be to use this evidence to build conclusions about how inequalities should most effectively be tackled.

As we embark on the new year, below are some of the inequalities that 2020 has reminded us of and, in no small part, made worse.

Labour market divides

The divide between the well paid highest educated, and the lower paid less well educated, has been viciously exposed by the pandemic. Of course, graduates and non-graduates tend to work in different occupations — a key route through which graduates are typically able to earn more, have better prospects of progression, and often better working conditions. Covid added a huge new twist to this story of occupational segregation: Zoom. Many people in occupations dominated by the highly-educated  have continued their work safely and reasonably productively in the comfort of their homes — shielded from the virus and from the threat to their livelihoods.

The proportion of people doing any paid work fell by around 40 per cent between February and April among those with no more than GCSE-level qualifications, and by around 20 per cent for those educated to degree level (Benzeval et al, 2020). By the third quarter of 2020 the proportion of non-graduates  doing any hours of paid work was still 17 per cent lower than it had been pre-pandemic, compared to 7 per cent for graduates.¹ (These numbers all count those on furlough, but working zero hours, as not doing any hours of paid work.)

Education

Educational inequalities begin early and, as we have seen, have big effects on what happens later. Fewer than half of pupils on free school meals reach expected levels of achievement in maths and writing by age 11, and only c.40 per cent get good GCSEs in English and Maths. Around 70 per cent of other pupils reach these basic benchmarks. There are very big gaps in entry to university by social background. Fewer than a fifth of pupils from the most disadvantaged areas go on to university by age 19 by comparison with more than 45 per cent of state educated pupils in the most advantaged fifth of areas.² Those from private schools are much more likely still to go into higher education, and the proportionate gaps are even greater when looking at entry into the most selective universities. Dive into the detail and the gaps get enormous. Just 8 per cent of white boys on free school meals at comprehensive schools in the poorest fifth of areas go on to university. 85 per cent of Asian girls not on FSM at selective schools in the most advantaged areas do so.³

The pandemic is likely to exacerbate these inequalities. Before the pandemic primary school children spent around six hours a day on educational activities, regardless of their family income. The Covid-19 school closures saw this fall by a quarter, to 4.5 hours a day, during early May. But school closures also fostered new inequalities; students in the richest third of families (based on pre-Covid income) saw their learning time fall by much less than their poorer peers.

And students trying to learn from home also faced different barriers. Among secondary school students, 65 per cent of parents in the richest third of families reported that their child’s school offered active home learning resources like online classes or video chatting, compared with 53 per cent of children in the poorest third (Andrew et al., 2020a). The inequalities at primary school were even larger. Sutton Trust research suggested that pupils at independent schools were twice as likely as those at state schools to take part in online lessons every day.⁴ Students in better-off families were also far more likely to have access to quiet study space at home, and to have a device to access online schooling resources.

In addition, when schools started to reopen in June and July, students from poorer families were substantially less likely to return when given the option (Andrew et al., 2020b). Since September pupils in areas with lower GCSE attainment and higher levels of disadvantage have missed more days of school than others.⁵ Taken together this means that the poorest students spent less time learning than their richer peers; they had fewer resources at home and from their school to learn effectively; they were less likely to return to in-person schooling when given the chance; and they have lost more days of schooling during the Autumn. There has been a very, very gradual closing of social class gaps in some measures of educational achievement over the last several years. There is a real danger that a long term consequence of the pandemic will be to halt, or even reverse, that all-too-modest progress.

Health and geographic inequalities

One of the most salient inequalities is that between different places. Taking one of the most obvious metrics of the pandemic’s impact — deaths from Covid-19 — it is deprived communities that have suffered the most, as Figure 1shows. Very much in keeping with a key theme of the Deaton Review, this seems to reflect a number of overlapping disparities in different domains of life — such as the jobs that people work in, their pre-existing health, and housing conditions.

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More generally, geographic inequalities in the UK are not best understood through simple rules of thumb like a North-South divide. The dividing lines are typically found at a more local level than that, and localities can often be in quite different places in the league table depending on what kind of outcome you look at. As early pieces of work undertaken for the IFS Deaton Review have shown, this was true both before and during the pandemic (Agrawal and Phillips, 2020; Davenport et al, 2020). But geographic disparities in vulnerabilities to different aspects of life in a pandemic have certainly been  large. Coastal towns, which were already relatively poor on average, are at the sharp end in more than one respect. Their reliance on tourism makes people’s jobs relatively exposed to the impacts of social distancing, and their older populations   make them relatively vulnerable to Covid-19 itself.

Ethnic inequalities

Early in the pandemic it appeared that Covid-19 deaths were higher among minority ethnic groups. A number of subsequent analyses confirmed these stark differences (Platt and Warwick 2020; Aldridge et al. 2020). Age-adjusted mortality rates were highest among Black African men, at 2.7 times the rate for White men, and among Black Caribbean women at twice the rate of  White women, with elevated risks for men and women from South Asian groups as well.⁶   These heightened mortality risks were associated with existing inequalities faced by minority ethnic groups. Overlapping risk factors of geography, deprivation, housing and overcrowding, alongside differences in pre-existing health conditions, were found to partly, though not fully, explain the differences in mortality.

Differences in the risk of Covid-related deaths across ethnic groups stemmed from both more severe outcomes among those infected,⁷  as well as greater risks of infection  in the first place (Sze et al. 2020). Risks of infection can themselves be linked to geographical concentration and inequalities in housing conditions, but also, importantly, to occupational distributions. Ethnic minorities are over-represented in jobs which have been shown to have higher risks of Covid-19 infection and mortality, such as care workers and health care workers, but also transport workers, retail, and security guards.

While these occupational concentrations put workers at risk of infection, the pandemic also had disproportionate impacts on minority ethnic groups through loss of work and livelihoods. Those from minority ethnic groups, particularly Pakistani and Bangladeshi men, were much more likely to be working prior to the pandemic in jobs which were subject to the lockdown. Pakistani men are also much more likely than others to be self-employed, with 25 per cent in this position. They therefore face the heightened economic vulnerability that has affected own-account workers. Negative economic consequences also extend to families, since minority groups in hard-hit labour market sectors (as well as in vulnerable self-employment) were more likely to have children financially dependent on them.

Generational inequalities

In the decades leading up to the crisis there was a sharp divide between the experiences of different generations. Between 2002 and 2019 the incomes of the over 60s rose by 30 per cent while the incomes of the under 65s rose by 7 per cent. (Bourquin, Joyce and Norris Keiller, 2020). Young people have had a particularly difficult time in the labour market: average earnings among employees in their 20s were still 2 per cent lower in real terms in 2019 than they had been in 2008 (Cribb and Johnson, 2019).

This crisis has exacerbated these inequalities. The young have been especially likely to work in shut down sectors, to lose their jobs and to suffer falls in incomes. By September and October, those aged 16-25 were more than twice as likely as older employees to have suffered job loss during the pandemic, and a majority of the group had seen their earnings fall (Elliot-Major, Eyles and Machin, 2020). Those over pension age have been much more sheltered from the economic consequences of the pandemic. Most retired people report no financial impact from the crisis, while a fifth of them report that their financial situation improved after the coronavirus outbreak, almost twice as many as report the reverse. (Crawford and Karjaleinen, 2020).

More striking than the divergence in income growth between generations over the last couple of decades has been the different path of asset accumulation. There was a collapse in home ownership from 55 to 35 per cent among those in their 20s and early 30s between the mid-1990s and 2017 (Cribb and Simpson, 2018). Membership of generous DB pension schemes also came to an end outside of the public sector. Over that period real house prices rose by 170 per cent (Cribb and Simpson, 2018), and the fraction of those in their 60s owning two or more properties reached 14 per cent (Crawford, 2018).

There is certainly a risk that the current crisis will exacerbate some key wealth inequalities. Stock markets around the world have held up remarkably well and a combination of even lower interest rates and cuts in stamp duty have contributed to a rise in house prices of over 5 per cent in the year to November. The programme of quantitative easing and low interest rates in the aftermath of the financial crisis resulted, perhaps inadvertently, in a redistribution of wealth towards the older and wealthier and away from the younger and poorer; the same may happen again. It is important that fiscal policy recognises these distributional effects and leans against them, rather than doubling down on them as has happened over the past decade.

Conclusions

It looks like government spending will have risen by c.£250 billion this year. About £80bn of that spending will have been on protecting people’s incomes via the CJRS and SEISS, and through increases in welfare benefits. Spending on health services (including new measures like Test and Trace) are due to rise by a staggering £50 billion. Yet this has been a year in which many inequalities have been exacerbated. Poor children have been hit worse than the better off. Higher earners and graduates have had their work disrupted less than lower earners and the less highly educated. The poor, and ethnic minorities, have borne the brunt of the health crisis. And the young have suffered a much bigger economic hit than the middle aged while the old, who have been most at risk from the virus, have been largely insulated from the awful economic shock.

A complete measure of the effectiveness of our response to the pandemic is still to come. Whether or not we have a speedy vaccine rollout with the effects on public health that we hope for, the wider impact of the pandemic on social and economic outcomes is a story that is just beginning.  Various groups who were already among the most vulnerable have been especially hard-hit by the events of 2020, but we do have the capacity to ameliorate  the hangover from this most dreadful of years.

This will require a broad set of policies aimed at increasing skills of those in work, and doing more for poorer children still at school; at tackling the root causes of poor mental and physical health; at ensuring those from all social backgrounds, ethnicities and parts of the country have similar opportunities; at supporting the younger generation as they enter the labour market, and recognising that while monetary policy perhaps has to support the older and wealthier, this strengthens the case for fiscal policy leaning the other way rather than, as over the last decade, pushing hard in the same direction; and it is surely now an inescapably urgent priority to find ways to adapt labour market and welfare policies to effectively support the growing numbers in self-employment and other forms of ‘atypical’ work.

The next phase of the IFS Deaton review will be focusing on all these issues, spurred by the even greater urgency created by the pandemic. We knew 18 months ago that finding a coherent and effective set of responses to pervasive inequalities was a priority for our generation. That fact could not have been brought home more clearly than it has by the events of 2020. We have to learn from the policy failures of the last decades. And we must build on what could be a once-in-a-generation opportunity to respond to a crisis so profound, and so disturbing in its impact on so many, that the need to effectively tackle these underlying inequalities seems inescapable.

Notes:

1. Calculations using Labour Force Survey 2019Q4 and 2020Q3.

2.https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/798404/SMC_State_of_the_Nation_Report_2018-19.pdf

3. https://www.ucas.com/data-and-analysis/ucas-undergraduate-releases/ucas-undergraduate-analysis-reports/equality-and-entry-rates-data-explorers.

4. https://www.suttontrust.com/our-research/covid-19-and-social-mobility-impact-brief/

5. https://epi.org.uk/publications-and-research/school-attendance-and-lost-schooling-across-england-since-full-reopening/

6. https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/deaths/articles/updatingethniccontrastsindeathsinvolvingthecoronaviruscovid19englandandwales/deathsoccurring2marchto28july2020

7.Public Health England [PHE] (2020) COVID-19: review of disparities in risks and outcomes.  https://www.gov.uk/government/publications/covid-19-review-of-disparities-in-risks-and-outcomes

References:

Agrawal S and Phillips D. (2020), ‘Catching up or falling behind? Geographic inequalities in the UK and how have they changed in recent years’, IFS Deaton Review Report.

Aldridge R et al. (2020). ‘Black, Asian and Minority Ethnic groups in England are at increased risk of death from COVID-19: indirect standardisation of NHS mortality data’. Wellcome Open Res. 2020; 5: 88.

Andrew A, Cattan  S, Costa Dias M, Farquharson C, Kraftman L., Krutikova S, Phimister A and Sevilla A. (2020a). ‘How are mothers and fathers balancing work and family under lockdown?’ IFS Briefing Note BN290.

Andrew A, Cattan S, Costa Dias, M, Farquharson C, Kraftman L., Krutikova S, Phimister A and Sevilla A. (2020b). ‘September return to school offers a change to level the playing field.’ IFS Observation, 23 August 2020. Accessed online: https://www.ifs.org.uk/publications/14980

Benzeval M, Burton J, Crossley T, Fisher P, Jackle A, Low H and Read, B. (2020), ‘Understanding Society Covid-19 Survey, Wave 1: April 2020 – The Economic Effects'.

Bourquin P, Joyce R and Norris Keiller A. (2020) Living Standards Inequality and Poverty in the UK: 2020, IFS Report, (https://www.ifs.org.uk/publications/14901)

Crawford R (2018) ‘The use of wealth in retirement’, IFS Briefing Note 237, (https://www.ifs.org.uk/publications/12959)

Crawford R and Karjalainen H (2020), ‘The financial consequences of the coronavirus pandemic for older people’,

Cribb J and Johnson P (2019). ‘Employees' earnings since the Great Recession: the latest picture’ IFS Briefing Note BN 256 (https://www.ifs.org.uk/publications/14530)

Cribb J and Simpson P. (2018) ‘Barriers to homeownership for young adults’ in (eds) Emmerson, Johnson and Farquharson The IFS Green Budget October 2018. IFS: London

Davenport A, Farquharson C, Rasul I, Sibieta L and Stoye G (2020), ‘The geography of the Covid-19 crisis in England’, IFS Deaton Review Report.

Elliot-Major L, Eyles A and Machin S. (2020), ‘Generation Covid: Emerging Work and Education Inequalities’, Centre for Economic Performance.

Platt L and Warwick R (2020) ‘Covid-19 and Ethnic Inequalities in England and Wales’, Fiscal Studies. 41(2): 259-289.

Sze S et al. (2020), ‘Ethnicity and clinical outcomes in Covid-19: A systematic review and meta-analysis’, Volume 29, 100630, December 01, 2020.