July: Increased financial difficulties for UK households | News and Features

Researchers in Bristol have found that there has been an almost 60% increase in UK households in severe financial difficulty.

Press release issued: 11 July 2022

One in six UK households (4.4 million) are now in “serious financial difficulty”, compared to one in ten (2.8 million) in October 2021: an additional 1.6 million households, according to a survey analyzed by academics at the Bristol Center for Personal Finance Research. .

This is worse than any other time during the pandemic. Of those 4.4 million in serious financial difficulties, to make ends meet, 71% have reduced the quality of the food they eat, 36% have sold or pawned goods, and 27% have canceled or not renewed insurance.

Half of all households (51%) now consider their overall financial situation to be worse than it was at the start of the pandemic. When asked the same question in October 2021, only a third thought their situation had deteriorated since March 2020.

The Coronavirus Financial Impact Trackercommissioned by abrdn Financial Fairness Trust and analyzed by experts from Bristol, has been monitoring the personal finances of households since the start of the pandemic (a sample of around 6,000 people).

Since the last survey (October 2021), single-parent families have experienced the largest decline in financial well-being, with the proportion in severe financial distress rising from 23% to 37%. Other groups especially affected are social tenants, individuals and households with two children (all of them with a rise of more than ten percentage points). In addition to the 4.4 million in serious financial difficulties, another 20% (5.7 million) are in financial difficulty. As a result, 36% (or more than 10 million) of UK households are facing significant financial difficulties (either in serious financial difficulty or in distress).

The researchers found that people were using a variety of methods to address rising energy bills, beginning in early January 2022:

  • 31% had reduced the number of showers/baths performed.
  • 60% had avoided turning on the heating.
  • 33% had reduced their use of the stove/oven.
  • 24% had heated only part of their home.

Just under one in five households (18%) had not taken any of these actions, meaning that the vast majority (82%) had tried to do at least something to counter rising energy prices.

Another way people are trying to cut costs is by cutting their pension savings. 21% of those for whom their main income comes from the ‘gig economy’ had stopped contributing or reduced pension contributions. The figures are lower for those who are self-employed (12%) or have at least one source of income (9%). However, even these lower numbers could have long-term significance for financial resilience.

The research shows some geographic variation in the rates of households in serious financial distress. While 16% of UK households are in serious difficulty, this rises significantly to 22% in Wales, 21% in Scotland and 20% in the North East of England.

Looking ahead to the next three months:

  • Half (50%) of households are concerned about their ability to pay their gas or electricity bills.
  • Two in five (39%) are concerned about their ability to cover food costs.
  • Three in ten (29%) are concerned about their ability to meet housing costs (rent or mortgage).

Nearly six in ten (58%) are very/quite concerned about their financial situation, especially households with disabilities (72%) and those receiving or applying for benefits (77%).

One measure the government introduced (in March 2022) to help with rising energy bills was the ‘Council Tax Rebate’, a £150 rebate of council tax to households living in properties in the council tax bands A through D. Research indicates the reduction may not be reaching all of those who needed it most. A similar proportion of households with serious financial difficulties (40%) reported receiving the refund as those in a ‘secure’ financial position (41%). In addition, up to a quarter (26%) of households with an annual gross income of more than £100,000 reported receiving the refund.

Professor Sharon Collard, chair of personal finance at Bristol, said: “Many people are cutting back to deal with the cost of living crisis. What really surprised us was how many people are cutting back and the variety of methods. What is particularly worrying is that people can pile future financial problems on themselves by canceling insurance or cutting their pension contributions.”

Mubin Haq, CEO of abrdn Financial Fairness Trust, said: “Our latest survey findings clearly show that people are facing a significant reduction in their finances. This is the first substantial deterioration we’ve seen since tracking people’s finances when the pandemic began. Times are tough for everyone, but it is those with the lowest incomes who are particularly feeling the effects of rising prices. Many of the measures introduced by the government were welcome and generally well-targeted, although as our analysis shows, this is not always the case, as highlighted by the municipal tax refund. What is more worrying, these are short-term remedies.

“Wages have largely stagnated and no longer keep pace with inflation, and Social Security is lower in real terms than it was more than a decade ago. A more comprehensive and longer-term plan is urgently needed to ensure that living standards do not plummet further.’

More information

This analysis is based on data taken from a YouGov survey of 5,716 people. It was commissioned by abrdn Financial Fairness Trust for their Financial Impact Tracking series, conducted May 25-June 6, 2022 and reviewed by the Center for Personal Finance Research (University of Bristol). This is the sixth wave of the survey.

Some 40% of respondents had completed the survey before the government’s announcement of new measures to tackle the cost of living crisis on May 26.

The researchers explored whether there were significant changes in respondents’ attitudes or confidence in their future financial situation depending on whether or not they had completed the survey after the announcement. This did not show any significant change, even when controlling for the changing profile of respondents over time.

The segmentation of households into four categories (‘in serious distress’, ‘in distress’, ‘exposed’ and ‘insecure’) is based on various measures of financial stress and financial resilience for the coming months:

  • Evaluation of the current financial situation;
  • How much you struggle to pay for food and other necessities;
  • How much you struggle to pay bills and other commitments;
  • Arrears, including moratoriums on the payment of bills and household commitments;
  • Ability to cover an unexpected bill equivalent to one month’s income;
  • How long could you make ends meet if you experience a drop in revenue of a third or more;
  • Amount withheld in savings.

Those with a score below 30 out of 100 were considered to be in severe financial difficulty; scores from 30 to 49 were taken as indicative of difficulty making ends meet and scores of 50 to 79 of being potentially financially exposed. As an example, 81% of households in our ‘serious struggle’ category find it a ‘constant struggle’ to pay their bills, while 80% of households in our ‘struggler’ category say they ‘struggle from time to time’ from time to time’: and this drops to 57% of those in our ‘exposed’ category. Full details of the methodology used can be found in Kempson, Finney, and Poppe (2017) Financial Wellbeing: A Conceptual Model and Preliminary Analysis.

About abrdn Financial Fairness Trust:

abrdn Financial Fairness Trust funds research, political work and campaigning to address financial problems and improve the standard of living of low- to middle-income people in the UK. It is an independent charitable trust registered in Scotland.

abrdn Financial Fairness Trust was known as the Standard Life Foundation until December 2021.

About the coronavirus financial impact tracker:

YouGov carries out monitoring on a regular basis. People in Northern Ireland, Wales, England and Scotland are asked about their income, paying bills, loans, debt, savings and other financial changes, including their ability to pay for essentials like food. Respondents are randomly selected from YouGov’s online panel. The basis for the analysis is the people who are responsible for the finances of the household. Non-heads of households who are solely responsible for their own personal finances (most of whom were under 25 and living at home with their parents) are not included in this report’s analysis.

The tracker identifies the demographic characteristics and socioeconomic circumstances of affected people, as well as the strategies used by people who have been negatively affected by the crisis to make ends meet. It also identifies how many and what types of people expect their financial circumstances to deteriorate in the coming months. The report covers the UK population as a whole, as well as the four individual UK nations. Within England, it identifies the regions where the impact has been greatest.

The tracker monitors levels of anxiety stemming from financial problems and usage, as well as the potential need, for money guidance, debt counseling, or additional support from the government or other agencies. The report identifies the number of people using government support such as the job retention scheme and support for the self-employed and those facing a drop in income who are not covered by any of these measures. It provides a regular picture of how the nation is responding to the economic shock created by the crisis.

Previous editions are available on the Trust website.

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