The latest edition of the Financial Fairness Trust's tracker found that across the UK one-in-six of all households (4.4 million) are now in ‘serious financial difficulties’, compared to one-in-ten (2.8 million) in October 2021 – an additional 1.6 million households. Mubin speaks to Sharon Collard and Jamie Evans from the Personal Finance Research Centre at the University of Bristol, who carry out the regular analysis of the data, about the trends they are finding.

Full transcript

Mubin: Welcome to the Financial Fairness podcast with me, Mubin Haq.

In today’s special bonus episode, we’re discussing the latest findings from our financial impact tracker. The tracker is based on a survey we’ve commissioned from YouGov, which examines the finances of nearly six thousand households.

Since the start of the pandemic we have been working with a team of researchers at Bristol University to track household finances. We wanted to see how people were faring during the turbulent times, and to be able to make policy recommendations based on real-time evidence on what was happening. Something that really surprised us was that, there wasn’t a steep decline in financial well-being during the pandemic. Clearly some people were more affected, especially those excluded from government support, but others saw a boost to their finances. So overall, the numbers in financial difficulty, did not significantly rise or fall over the past two years.

However, the latest iteration of the survey shows that things have now taken a sharp downturn. Here with me today are Sharon Collard and Jamie Evans from the Personal Finance Research Centre at the University of Bristol who analyse the results from the financial impact tracker.

Firstly Sharon, can you tell us what you found in the latest survey?

Sharon: what we see is that about half of all UK households, we're talking about 14 million households here, feel that their financial situation is actually worse now than it was at the start of the pandemic. And that has got worse since October 2021, when we had the last tracker, and it's gone up by a third. it's really telling us things are biting for households. Over the course of the pandemic, it was interesting, because it was a pretty stable picture, really, but now we have really started to see things deteriorate.

Mubin: So, Jamie, can you just tell us a bit more about what's happening to people's finances at the moment, we've heard there's been a significant deterioration.

Jamie: Effectively, nearly every measure that we looked at, we found a worsening of financial well-being. So we can look at things like savings and what's happening to people's savings accounts. And broadly there, you're seeing, a worsening of the situation, we now have around a quarter of households report that they have no savings, we're also seeing that the number of people drawing on credit to make ends meet is really going up, not substantially, but enough for us to be worried about, around a third of card holding households are only making the minimum payment and that means there'll be paying back more money over a longer period of time, again, effectively deferring the cost of living crisis over the medium and longer term. And similarly, we're seeing more households are owing money on a greater number of credit cards.

Mubin: Are we seeing a real quantum change in these numbers that you've been talking about in terms of a deterioration? So for example, significant drop in the in the number of households who no longer have savings, who are making minimum payments, is it different to what was happening during the pandemic?

Jamie: Definitely, I think during the pandemic, there was a relative stability in terms of household finances, only because we had a government spent 100 billion pounds on the furlough scheme and self-employment support scheme. So at huge cost, we were able to broadly protect most people's finances, obviously, not everyone, but we did see relative stability. Now things are getting worse, essentially.

Sharon: I think the pandemic basically was amplifying problems that many households are already experiencing pre pandemic. So we already had a lot of inequality. We already had low wage growth, austerity measures really biting for people. And so the pandemic was building on top of those shaky foundations for households that were not in great financial shape.

Jamie: It is worth bearing in mind that of the 4.4 million households who are in difficulty now, nearly 3 million of those were already in difficulty in the previous waves of our survey. So while the cost of living crisis has added another million and a half households into difficulty, many we're already facing that pressure.

Mubin: And that's about 60% increase in those facing problems in terms of serious financial difficulties. Sharon, what's particularly driving this change?

Sharon: So the cost of living is clearly a really big driver. But as we've already talked about, I think some of the other things that have been happening that have roots way before the pandemic, such as the state of the economy, the fact that we've had austerity policies and measures for such a long time, I think those things are all adding to the pressure that households are feeling at the moment. What did that mean? Well, it meant that actually households who were on modest incomes, it was very difficult for them to build up any sort of financial safety net, having things like insurance, even small lumps of money put aside. And at the moment, energy is a big one here because people on low incomes are more likely to be on prepayment meters where the costs are high. So it's things like that that really catch people out.

Jamie: Around 80% of households feel that their spending on energy bills has gone up. But we actually find that that's even higher among those in difficulty, the worse off you are, the more likely you are to feel the impact of rising energy costs.

Mubin: There's some big variation in housing costs, isn't there Jamie?

Jamie: Looking at housing costs, in particular, we do find that it is those in the most difficulty who are more likely to see their housing costs increase. So around 40%, so two, in five of those in serious difficulty had seen their housing costs increase. And this is mainly due to the fact that they're more likely to rent their homes.. And at the other end of the scale, you've only got around 10% of financially secure households who have said that their housing costs have gone up.

Sharon: I think there's a link between the two things that Jamie has talked about around the housing costs and the energy costs, because also, you've got rented accommodation, quite a significant proportion of that won't be particularly energy efficient. And so there will be issues there with households being able to make the best use of the money that they spend on energy, because their homes simply aren't energy efficient. Because that's, that's not in their gift to change that. And I think that's a particular worry coming into the winter, when energy costs will go up in October and energy use is not going to be efficient for the people who need it to be efficient, and who have the least to spend on it. So I think those two things come together.

Mubin: Sharon, could you just say in a bit more detail the steps that people are taking, try and mitigate some of these rising costs?

Sharon: It's quite unusual for households to be saying they're not doing anything. What the data tells us is about eight in 10, households say they've tried to cut back in terms of their overall spending. So that's most of the population trying to keep a hold of their purse strings a bit more tightly. But it's quite interesting, because even where households are cutting back on certain types of spending, they're still spending more. So they're in this vicious cycle where they are cutting back, but they still not catching up in terms of the rising prices. And perhaps not surprisingly, energy is a good example of that, where about two thirds of households say they've actually cut back on energy, but they're still seeing their spending on an energy increase.

Some of the other things that people are doing, half of households say they're saving less money than usual since the start of 2022. And that means, of course, that their capacity to build up a safety net for the future is being diminished. We've also got people dipping into savings to pay for daily living expenses, as they're seeing that that gap doing their income and their expenditure get wider. Interestingly, about one in six households have worked more hours in the past four weeks when we surveyed them. I think one of the most striking things for me from the research was those households who really are in serious financial difficulty, 36% had sold or pawned possessions that they would prefer to keep. And that one really struck me. People don't normally perform things unless they really, really have to. And that I think it's a real red flag for us that people are having to do that and such large numbers of people in serious financial difficulty. And the other thing that we noticed was that about three in 10, households in serious financial difficulty had cancelled or not renewed, at least one type of insurance.

Mubin: And we have seen quite a noticeable number (small) of people using unlicensed moneylenders.

Sharon: Yeah, that's right. It's, it's I think it's somewhere around two and a half percent of households. And that was pretty much in line with other data that's been collected, I think, by the Centre for Social Justice. So yeah, I mean, that's pretty much under the radar activity. So to see that being used, I think is another sign to me, it's suggests that people are starting to find it difficult to access mainstream regulated credit.

Jamie: And we also have to bear in mind that around one in five households are turning to their family or friends for financial help. And we all recognise that that can that kind of create real tension, I think within households and between family and friends, and can be a whole range of difficulties with that.

Jamie: And I think we're gonna see other things that we haven't seen in in a long time. So I mean, there are already stories of people going to public spaces to try and keep warm. I know that a lot of councils across the country are looking at how they can promote these public spaces that are warm and dry and promote them for people to go to if they're just struggling to keep warm at home.

Sharon: I was just going to jump in and say, I think it also speaks to that medium- and long-term timeline that we were talking about earlier. And and just the fact that there needs to be changes to infrastructure so that people's homes are warmer, they are able to heat them more efficiently, because it's some of those really basic issues about fundamental issues about the quality of people's homes and their ability to kind of get good value out of the energy that they're actually buying. I think some of the things that are going to make a difference long term. And while the short-term fixes are that government support is really welcome. They've announced a big package back in May, I think we also have to look to the longer term, particularly because so much of this is relevant to thinking about climate change.

Mubin: The tracker went into the field, just as chancellor was making his announcement, and we couldn't discern any significant difference between responses before or after the Chancellor's. And I should say Rishi Sunak’s, announcement at the time, it seems as if it clearly hasn't been enough to make the desired impact. Do you think that's a fair assessment? Sharon?

Sharon: I think certainly the tracker data told us that people weren't feeling it. Because what we see is that many households, were still really worried about what was going to happen. But households are looking three months in advance and thinking, well, some help now is great, but how am I going to manage what the school holidays coming up for families, you've got price rises going up in terms of energy in the autumn. So I think it's it, while it was very welcome, it probably wasn't enough to allay what is a fairly widespread and deep anxiety that the population has about its finances, and particularly, again, those households who are in difficulty. So for example, about 50% of households, generally across the population, told us that they were worried about their ability to meet their gas or electricity bills in the next three months, similar numbers are worried about food costs, and also things like the possible effect of tax changes on their on their incomes, or being unsure about what difference that's going to make. I think also, one of the things we know is that a bit like in the pandemic, as humans, we don't deal very well with uncertainty. So the fact that we know that prices are going up, but we don't know how much, how are we going to cope with them? I think that all feeds into a general anxiety about how we're going to manage financially.

Mubin: And also the fact that wages really have stagnated. So it's not just what the government's doing. It's what employees are doing and what they feel that they can afford to pay. And that's just been really quite paltry over this past decade or so.

Sharon: Yeah, I think that's right. And we've also been seeing some increase in for example, insecure work, flexible work, people might welcome and you really value that flexible work. But quite often it does come with insecure pay in terms and conditions, which, if you're on a low income make that difficult to manage.

Mubin: Okay, so my last question, we've got this conservative leadership race with selecting a new prime minister, I'm not going to ask you who you think's going to win. But what's the one thing you'd like them to do in relation to this cost of living crisis? What's the one policy idea?

Jamie: Well, I think we need to go beyond thinking about just the immediate cost of living crisis. And we need to look at the longer term challenges related to poverty in the UK, I don't think I've heard the word poverty mentioned at all by any of the candidates yet. So we need that to be front and centre, because it's been ignored for too long, really. And that's not to say that there aren't a huge number of challenges facing a much wider proportion of the population. And the cost of living crisis is clearly huge. But we do need to get back to basics in terms of, of tackling poverty in the UK.

Mubin: I like how you framed that, Jamie, in terms of getting back to basics. That's a very conservative line there. But what would that actually mean, in terms of policies for you?

Jamie: We need to be looking more at what we can do to cut taxes, which disproportionately affect those on the lowest incomes. So that's things like VAT, things like the standing charge on energy bills, which are effectively ended up being higher, if you're, if you're using less or disproportionately affects people who are using less energy.

Sharon: I think if I had one thing, this would never make it. What I want the policymakers to do and the politicians to do is to wake up and smell the data. And there is so much data out there that shows how people are experiencing this that just it leads to some short term policy solutions. But just the lack of long term thinking, I think is really frightening.

Mubin: I wonder how much of that has to do with concerns about the cost of really trying to deal with these problems. So it may not be that there's a VAT? I'm not necessarily aware of the data, but people end up dodging it because there's a huge cost.

Sharon: Yeah, absolutely. I mean, I'm not a politician, so that I'm sure that would be the first thing that anybody would come back and say, How much is that going to cost? And we can't afford it. But if you look at countries that have got much better social welfare provision, I think the data would tell us that they've done much better in terms of weathering the pandemic, I've come out of it less on equal than we have in the UK. So yeah, I totally appreciate that. It's a long term view isn't one that politicians tend to take, except if it was very high level kind of manifesto promises, but I just think that's a shame. We'll probably be back in five years or 10 years having the same conversation unless something more radical happens.

Mubin: Yeah, and there are financial costs but there are savings to be made. And there's a human cost as well, that's often very forgotten in, in terms of some of these debates around data. And as if these are just widgets really, when these are real people's lives and the impact it's having on families across the country.

Jamie: I think we've got to remember that the prevention is often cheaper than cure. And there are a whole range of knock on costs associated with poverty. So you're seeing more crime, you're seeing a whole range of health problems that are directly caused by people living in poverty. So there are huge savings to be made to the police force to the NHS, if we can deal with some of the problems related to poverty. And I don't think that gets talked about enough within the policy conversation or within the national conversation anyway. So yeah, we do need to look again, at some of these things.

Mubin: Thanks again, Sharon and Jamie, for sharing your thoughts on the latest financial impact tracker. That was really good to hear your insights and your expertise.

Sharon: Thank you very much Mubin.

Jamie: Thank you Mubin, take care.

Mubin: Thanks to everyone for taking the time to listen in. If you enjoyed this episode, please like and subscribe to the Financial Fairness Podcast. All episodes from series one are available to download and stream online, from our website as well as major podcast platforms.

We’ll be taking a little break over the summer, but we’ll be returning soon for series two.

Until then, thanks for listening.