A new report out today finds that the financial outlook is poor for over 8 in 10 (83%) of households who receive Universal Credit (UC) – around 3.4 million households in total. This reflects the fact that these households were often in a difficult financial situation before the pandemic and have seen their situations deteriorate further over the past 18 months. Nearly three times as many households in receipt of Universal Credit (UC) struggle to pay for food and/or bills (42% compared with 15% of all working age UK households), and twice as many have to borrow to pay for essentials (35% compared with 16%), meaning that many will struggle to meet the costs of Christmas.
Bleak expectations, by a team at the University of Bristol for abrdn Financial Fairness Trust, is a Christmas tale of two halves. For every household that saw its financial situation improve since the start of the pandemic (21% of all UK households), two households saw their financial situation get a little or a lot worse (38%). The situation is particularly stark for households who receive Universal Credit, both those in and out of work. Even before the cut of £20 to Universal Credit took effect, seven in 10 households on Universal Credit (68%) had seen their financial situation get worse over the past 18 months, compared to 4 in 10 of the rest of the working-age population; and four times as many households on Universal Credit were in serious financial difficulty (42% compared to 12% of non-retired households).
In response to warnings about a winter ‘cost of living crisis’ in the UK - brought about by factors including low earnings growth, impending tax rises, and above-inflation increases in energy bills and food prices - the 2021 Autumn Budget announced two policies that would benefit low earners. The first was an increase in the national living wage of over 6%. The second policy brought in changes to Universal Credit which should benefit around two million low-income workers. Nonetheless, it is estimated that three-quarters of families on Universal Credit will lose more from the withdrawal of the temporary £20 per week Universal Credit uplift than they gain from the Budget changes. The Spending Review did not offer any support for the 3.5 million people receiving Universal Credit recipients who are not in work, (including 1.7 million claimants who are not required to look for work because of their health, disability or caring responsibilities).
Researchers are calling for policymakers to pay more attention to the links between low financial wellbeing and poor mental health. The data in this report highlights the importance of policies to bolster the financial resilience of all households as the economy recovers. This should have knock-on benefits for the UK population’s wider health and wellbeing, ultimately benefitting the economy and society.
Professor Sharon Collard, Chair in Personal Finance at the University of Bristol, said:
“Whilst Christmas is back to normal for many people, a quarter of households are really struggling and see no prospect of things getting better. There are seven million families who took a financial hit during the pandemic, their savings were used up and many used credit cards to pay for essentials such as food and bills. They do not see things getting better for them, and their ability to recover is being undermined by their poor financial position.”
Mubin Haq, CEO at abrdn Financial Fairness Trust, said:
“Today’s report paints a bleak picture for those reliant on Universal Credit. Even before the £20 a week cut, the majority had seen their financial situation deteriorate during the pandemic. Now they see a grim future ahead of them, with government measures in the latest spending review failing to provide any reassurance. We find too many are unable to pay for food and other daily essentials and faced with rising food and fuel prices, those on Universal Credit feel their finances will decline even further this winter. The holes in our safety net need fixing if we are tackle the problems caused by rising inequality and make Britain financially fair for everyone.”