By Mubin Haq, CEO, abrdn Financial Fairness Trust
Here at abrdn Financial Fairness Trust we’ve been tracking the impact of the pandemic on household finances since the start of the first lockdown. A regular poll of around 6,000 households in the UK gives us a detailed picture of how people’s finances have been faring. Our latest findings paint a worrying picture of growing inequality in Scotland and the other nations of the UK.
One-in-five UK households have seen their financial situation improve, many benefitting, at least financially, from the restrictions due to fewer opportunities for spending. We found those who were in a strong financial position at the start of the pandemic were likely to be in an even stronger position now. Research we conducted with the found total household savings are £200bn higher than they were pre-crisis and house prices have risen by over eight per cent. This has led to led to the first mid-recession wealth boom since the mid-1940s.
However, for every household which saw an improvement in their finances, two saw things get worse. Nearly 4 in 10 have seen their financial situation get a little or a lot worse during the pandemic. This amounts to around seven million families across the UK. For those in serious financial difficulty, the situation in Scotland is slightly worse than for those in England (13% compared with 10%). If we look closely at who those households are, we find those on Universal Credit, those where someone is disabled and those who are unable to work, have fared particularly badly.
These households were often in a difficult financial situation before the pandemic. Now, 43% of families receiving Universal Credit report they are struggling to pay for food and other essentials; and 35% are having to borrow to pay their bills. Unsurprisingly, 8 in 10 households who receive Universal Credit report that their financial outlook is poor. Rising prices mean they don’t see things improving any time soon., especially as we will see sharp increases in energy bills in April.
In Scotland, government has been going further to help families on the lowest incomes, particularly with the Scottish Child Payment. IPPR Scotland estimates that bringing forward the doubling of the Scottish Child Payment to £20 a week from April 2022 will support 400,000 families and lift 30,000 children out of poverty. However, more support is needed as there are more households in Scotland struggling to pay for food and essentials than the UK as a whole: 17% in Scotland, compared to 13% in the UK as a whole. There are also more households in Scotland who are struggling to make ends meet (26% compared to 20%).
Action is needed on a variety of fronts to avoid the huge squeeze on living standards. This includes wage growth, especially for those on lower wages; help with the rise in energy bills for all poorer households, above and beyond existing measures such as the Warm Homes Discount; and a more generous social security system, which currently fails to provide the basics many of us take for granted. This will come at a cost and we will all have to contribute. But as our research shows, some of us have deeper pockets which have become even deeper during the pandemic. Financial security and financial fairness must be at the heart of how we make decisions going forwards.
The Tracker is available to download for free.
This article first appeared in The Scotsman on 14 January 2022.