Welfare policies are pushing people into the red.
Our latest data insights shows that people are still struggling to afford daily living costs. The data we have for the last quarter, released today, shows that the cost-of-living crisis is no longer a crisis, but a terrifying ‘new normal’ of people living on empty.
The number of people we’re helping to access food banks continues to rise. This is a clear sign that the impact of the April/May Cost of Living payments is wearing off — and presents worrying signs for the winter. We’re now helping more than 830 people every month with an emergency food bank referral.
At the same time we’ve helped a record number of people who can’t afford to top up their prepayment meter this year. By the end of September, we’ve already helped more people who can’t top up their prepayment meter this year than we did for all of 2022 — and 2022 was higher than the previous ten years combined. If someone’s prepayment meter is not topped up, then that means going without light, electricity, heating and the means to cook and store food.
People are cutting back wherever they can. But rising costs are forcing many to stop spending on essentials completely, leaving them cut off from key services like broadband and car insurance.
Negative budgets are pulling everyone into the red
Essential living costs are continuing to outpace incomes as half of the people we help with debt are in a negative budget, with more going out each month than they have coming in.
Our latest Living on Empty report reveals that the number of people employed and in a negative budget has grown considerably over the past few years. This is the case for people across all different types of employment, whether self-employed, working part-time or full-time. We’re increasingly seeing people in full time work who previously had enough to make ends meet, being pushed into the red — the number of people in this group in a negative budget has gone up by nearly 12% since the start of 2019/20.
We’ve also seen mortgage holders, another group who used to break even each month, being pulled below the negative budget threshold.
The increasing challenge for groups we’ve previously helped less often with debt issues to meet daily costs underlines the widespread impact of the cost-of-living crisis. It’s fundamental that the Government acts quickly to bring down essential costs and make sure incomes keep pace with living costs.
Our data continues to highlight how the cost-of-living crisis is hitting marginalised groups harder. Among the people we help with debt advice, a higher proportion of People of Colour are in a negative budget than white people.
Pre-existing structural inequalities have resulted in racially minoritsed groups being disproportionately impacted by rising bills and inflation, while facing additional barriers to financial recovery and rebuilding financial resilience. These figures starkly underline the urgent need for the Government to address disparities in living standards and income.
Unwelcome records
Living with a negative budget means being forced into debt is the only way to cover crucial living essentials. We’ve raised the alarm that arrears for household bills have created a ticking debt timebomb. Our most recent data shows just how close this is to going off, and that for many households, it already has.
This quarter, levels of rent and council tax arrears are the highest they’ve ever been among the people we help with debt advice, while energy debt remains at a record high. Unwelcome records continue to be broken showing how households have no way of stopping debt, let alone begin to pay them back. For so many people, this impossible situation means bailiffs banging at the door, the constant threat of eviction and risk of homelessness, and being trapped in a spiral of debt it’s impossible to stop or get out of.
What could be worse?
Knowing that the very policies intended to support you are keeping you there.
Welfare policy pushing people into the red
Deductions and sanctions to Universal Credit (UC) have pushed many households further into debt.
People with a low income applying for UC to support them with living costs face up to a 5 week wait for their first payment. During this time they can apply for an advance to help them. However, this is a loan which has to be repaid.
Deductions for this are taken as a priority from their monthly payments — meaning they don’t receive the full amount of financial support they’re entitled to until it’s paid back.
People claiming UC can also be faced with sanctions. These are deductions from UC for missing an appointment with a job coach or not fulfilling other mandatory work search requirements in your claimant commitment. This, again, reduces the amount of much needed financial support people receive.
We’ve analysed the data for the people coming to us who receive UC and are subject to sanctions, and found that it’s virtually impossible for someone with a sanction to break even each month. Any kind of sanction pushes someone deeper into a negative budget, and consequently, deeper into debt.
Policies surrounding deductions and sanctions and frozen Local Housing Allowance (LHA) have contributed to them not having enough money to buy food, forcing them to rely on foodbanks and charitable support.
These policies are keeping people trapped in a cycle of poverty and debt it’s very hard to get out of. They also place people under considerable stress. We know the impact poverty and the cost-of-living crisis has on mental health. The worries people have about maintaining access to food, housing and good health are heightened when their financial situation is placed under more stress by benefit deductions.
The scale of this stress becomes even more stark when you consider that we rarely help someone with just one issue. Problems are complex and most of the people coming to us have several interlocking issues which make their situation very tricky to navigate.
The people we see face a confusing web of many different issues, as you can see in the chart below. For example, half (50%) of the people we help with rent arrears, also need help with Council Tax Arrears. This causes a lot of worry, and makes working through them an even more challenging task.
Frontline insights are key to good policymaking
Looking at our latest data insights and the stories of the people we see everyday it’s clear how aspects of the welfare safety net, intended to support them, cause harm and make it even harder for them to get back on their feet.
Our insights from the frontline drive our assessment of policy and the development of our policy asks. That’s why we’re calling on the Government to reduce the rate at which deductions are made to benefit payments — to repay budgeting advances and advance payments etc — and ensure benefits to be uprated in line with inflation in the Autumn statement. We’re also calling for the Government to unfreeze LHA and introduce an enhanced Warm Homes Discount to provide immediate support to people this winter.
If the Government doesn’t take immediate action to support people, our figures for the next few months are only going to get worse.
Editor’s Note
This blog, first published on October 10th, was reproduced by kind permission of India Walden, Policy Research Assistant at Citizens Advice.