By Mubin Haq, CEO, abrdn Financial Fairness Trust
As we enter a new year, what is happening to living standards in Scotland and how are Scots weathering the current financial squeeze?
Whilst the cost-of-living crisis may not be gaining the same headlines as it did a year ago and inflation has fallen significantly, our latest research at the Financial Fairness Trust finds many continue to face significant difficulties in making ends meet. Around one-in-six in Scotland – nearly 450,000 households – are ‘in serious financial difficulties’. This means it’s a real struggle for them to meet their day-to-day expenses, with many behind on household bills or credit commitments.
Although this is the same level as the rest of the UK, fewer Scottish households have money in savings to cope with financial shocks; around three-in-ten have no savings at all. And the gap is greatest for those at the bottom – 55% of the poorest fifth of Scottish households have no savings, compared to 43% in the rest of the UK.
As freezing temperatures hit this week, many will be struggling to keep warm. Around six-in ten (57%) are using the heating less and four-in-ten (38%) are reducing their use of the cooker. However bleak that picture might look, things were worse a year ago when 80% of Scottish households were avoiding turning on the heating, suggesting that some people have been able to absorb high energy costs within their budgets.
The Scottish Government has said it will “pull all levers available” to alleviate poverty, and there are moves it has already made. The Scottish Child Payment tops up incomes for the poorest children in Scotland and will rise to £26.70 a week, and December’s budget introduced new income tax increases for high earners, intended to ensure that those with the broadest shoulders will bear more of the financial strain.
But October’s decision to freeze council tax will cost 50% more than the amount that will be raised by the new higher rates of income tax. Freezing council tax disproportionately benefits those with greater property wealth and will make less difference to those on lower incomes, with IPPR Scotland highlighting that just £10 million of this policy decision will benefit households in poverty.
However, it’s not all gloom. Economists are predicting incomes are likely to be a little higher for most by the end of the year and energy prices and interest rates are set to cool off. This should help everyone, but as our research highlights, there are particularly acute problems that those at the bottom face. More importantly, this doesn’t get away from the long-term trend of our social security safety-net being decimated (much of that rests with Westminster) and stagnating wages. As the Resolution Foundation notes, 15 years of lost wage growth has cost the average worker £10,700 a year. That’s a damning statistic.
It’s therefore no surprise that around half (47%) of Scots are ‘very’ or ‘quite worried’ about their overall financial situation over the next 12 months. Will the cost-of-living crisis start to be lifting by the time of the general election? Probably. Will it have lifted enough to get people feeling the benefit and perhaps even sway decisions at the ballot box? That’s almost certainly what the Conservative government is hoping. One thing is for certain, this will be an election focussed on how we improve living standards.
Mubin Haq
CEO, abrdn Financial Fairness Trust
This article was first published in The Scotsman on 18 January 2024, and can be viewed here.
Findings from the 9th wave of the Financial Fairness Tracker can be found here.
