Number of low-income households in arrears has tripled since pandemic hit, claims new study

Campaigners have issued fresh warnings regarding the extent of the debt crisis hanging over the UK’s poorest families today, after a new large-scale study of households on low incomes was released today.

The analysis published today by anti-poverty campaign group the Joseph Rowntree Foundation (JRF) looks at households in the bottom 40% of incomes in the UK – those with a household income of £24,752 or less. This represents around 11.6 million households.

It estimates that 3.8 million such households are in arrears with household bills, totalling £5.2bn. 950,000 are in rent arrears; 1.4 million are behind on council tax bills; and 1.4 million are behind on electricity and gas bills. 33% of low-income households are now in arrears, which is triple the 11% estimated by a similar study prior to the pandemic.

Working-age households on low incomes (those aged 18-64) have been particularly hard hit: 44% are in arrears. For households aged 18-24 this rises to almost three-quarters (71%) of people being in arrears. The survey shows clear signs that the profound financial impact of the pandemic has dragged families who were previously just about managing into arrears on essential bills. A large majority of households who are now behind on their household bills (87%) said that they were always or often able to pay all their bills in full and on time before the pandemic hit.

The survey also suggests a trend of increased borrowing taken on by households on low incomes. Around 4.4million such households have taken on new or increased borrowing, and their total amount of borrowing comes to an estimated £9.5bn. 69% of households with new or increased borrowing are also in arrears, claim the new figures.

The survey was conducted in September when many of the households surveyed still received the £20 Universal Credit uplift which has now been removed. Energy bills and other costs are continuing to rise, with the price of energy projected to soar further in the coming months. An increase in National Insurance contributions next April is another extra cost many working people will face.

JRF is urging the Government to put in place a package of support at the Budget to ease pressure on low-income households and prevent further debt. As well as urging the Government to reinstate the £20 in Universal Credit, the report also recommends that the Government provide at least £500m additional grant funding via the Household Support Fund for targeted debt relief.

The group also says it is “essential” that the government address “systemic drivers of debt” by writing off Tax Credit debts when people move onto Universal Credit and addressing Universal Credit advance repayments that they say many households have no option but to take on during the five-week wait for the first payment. This flaw in the design of the benefit has long been criticised by food banks and anti-poverty groups for causing ‘destitution by design.’

Katie Schmuecker, Deputy Director for Policy & Partnerships at JRF said:

“There is a debt crisis hanging over millions of families on low incomes. Behind these figures are parents gripped by anxiety, wondering how they will put food on their children’s plates and pay the gas bill; young people forced to rely on friends to help cover their rent and avoid eviction.

“While many households on higher incomes have enjoyed increased savings and rising house prices during the pandemic, people on low incomes are under serious financial pressure that shows no sign of abating. As a society, we believe in protecting one another from harm. As costs pile up and incomes have been cut, we urgently need to rethink the support in place for people at the sharp end of the cost of living crisis.

“The Budget is about priorities. We know the Chancellor is capable of taking bold action to protect people from harm when it is required. Reinstating the £20 per week increase to Universal Credit and boosting funding for councils to tackle debt must be priorities in next week’s Budget. We must give families the firm foundations they need to flourish and take part in our economic recovery.”