Over three-in-ten people who have started claiming Universal Credit (UC) during the pandemic have either acquired new debts, or seen their existing debts grow, as the crisis enters its eleventh month, according to new research published by the Resolution Foundation.
The debts that divide us – which includes analysis of a detailed online YouGov survey, supported by the Health Foundation – explores how people who have newly claimed UC during the pandemic have coped financially, as well as their prospects for the coming months.
The Foundation notes that of the almost six million people who are currently claiming UC, around three-in-five made a new claim in 2020, including many of the 1.4 million people who made a new claim at the start of the crisis in April and May of last year.
The research finds that families newly claiming UC have taken a major income hit, even with the vital £20 a week uplift to UC. Almost half (45 per cent) reported seeing their income fall by at least a quarter, while around one-in-three (34 per cent) reported seeing their income fall by at least 40 per cent.
And with the pandemic-induced economic crisis having lasted almost a year, the research shows that the big income losses faced by people moving onto UC are taking their toll on their ability to cope financially.
The research finds that over three-in-ten (31 per cent) new UC families have either acquired new debts or seen their existing debts grow, while around one-in-five (21 per cent) have fallen behind on paying essential (non-housing) bills.
Looking ahead to the next three months, a period in which UC is set to be cut by £20 a week (from 5 April 2021), three-in-five (61 per cent) UC families say they will struggle to keep up or will fall behind on bills, around twice the proportion of families across the economy as a whole (31 per cent).
The Foundation says that the uplift to UC has been essential for protecting family incomes during a pandemic that is lasting far longer than anyone expected when the policy was announced back in March 2020. The uplift is likely to prove just as vital in the coming months too, as more people claim UC off the back of rising unemployment.
It adds that with millions of households claiming UC experiencing real financial hardship, cutting their support in just two months’ time would be a grave error – and extinguish any hopes of a living standards recovery this year.
Karl Handscomb, Senior Economist at the Resolution Foundation, said:“Over three million people have started claiming Universal Credit since the pandemic began, including 1.4 million people who moved onto the benefit right at the start of the crisis.
“As the pandemic reaches its eleventh month – a depressing duration few expected last March – the income shock from with moving onto Universal Credit has evolved into mounting debts and arrears on essential bills.
“The Chancellor was right to raise Universal Credit to support families through tough economic times. And with tough times set to continue as unemployment rises through 2021, this vital boost to family incomes must be maintained.
“Cutting the incomes of six million families in just two months’ time, when public health restrictions are still likely to be widespread, makes no sense politically, economically, or in terms of raising people’s living standards.”
The extra cost of food, energy, and entertaining, distracting and home-schooling children has meant that low-income families with children are twice as likely to have increased, rather than reduced, their spending during the pandemic so far, according to new research.
Pandemic Pressures – a collaboration between the Resolution Foundation and the Nuffield Foundation-funded Covid Realities research project at the University of York – combines survey work with first-hand accounts of low-income parents and carers to highlight how the spending patterns of low-income families with children have been very different to the wider population during the pandemic, and during the first lockdown in particular.
The report notes that the pandemic has been marked by a huge reduction in overall spending as social activities have been curtailed by public health restrictions.
However, this ‘enforced saving’ has affected higher income households more, as they spend 40 per cent more of their income on recreation, leisure and hospitality activities than the poorest fifth of households (24 per cent vs. 17 per cent).
In stark contrast to this overall picture, the research shows that the pandemic has in many cases made it more expensive to live on a low income with children – and particularly so during lockdowns.
Over-one-in-three (36 per cent) low-income households with children have increased their spending during the pandemic so far (rising to 37 per cent during the first lockdown), compared to around one-in-six (18 per cent) who have reduced their spending. Among high-income households without children, 13 per cent have increased their spending, compared to 40 per cent who have reduced it.
The report highlights three main reasons for these extra pandemic pressures.
First, parents identified that having children at home 24 hours a day led to higher food and energy bills, while the need to entertain them during the lockdowns, in place of activities such as visiting families and public libraries, has brought additional costs.
Second, parents identified additional costs associated with home-schooling, such as acquiring laptops, paying for internet access and obtaining additional study materials.
Third, families noted that the cost of buying food had risen, due to the reduction in store promotions, and because the need to shield has forced many to use more expensive home delivery options, while the need to avoid public transport means those without access to a car have had to use more expensive shops closer to home.
The report notes that these spending pressures for low-income families have come off the back of living standards that have stagnated pre-pandemic. Real incomes for the lowest-income households were no higher in 2018-19 than in 2001-02.
With the third national lockdown likely to last several months and put families under further pressure, the report calls on the Chancellor to urgently do more to support family incomes during the pandemic.
The top priority should be to maintain the £20 a week uplift to Universal Credit (UC) into next year – otherwise six million households face having their incomes cut by over £1,000. The report authors add that the Chancellor should also strengthen the safety net for families with children in light of the extra cost pressures they face.
Mike Brewer, Chief Economist at the Resolution Foundation, said:“The pandemic has forced society as a whole to spend less and save more. But these broad spending patterns don’t hold true for everyone.
“The extra cost of feeding, schooling and entertaining children 24/7 means that, for many families, lockdowns have made life more expensive to live on a low income.
“With the country going into another lockdown for at least the next few months, the Chancellor should acknowledge the pandemic pressures that families with children face and reconsider plans to cut Universal Credit in just a few months’ time.”
Dr Ruth Patrick, Lecturer in Social Policy at the University of York, who leads the Covid Realities research programme said:“The idea of being able save money during this pandemic is just a world away from the experiences of the parents and carers we’ve been working with through the Covid Realities research project.
“Parents have found their spending increase, as some of the usual strategies they use to get by on a low income – shopping around for the best deal, going to families and friends for a meal when the cupboards are empty – have become suddenly impossible.
“The conditions the pandemic has created make it harder still to get by on a low-income, creating extra financial pressures, rooted in the requirement for families and their children to stay at home and restrictions on household mixing.
“While the need for the lockdown is clear, there is an equally urgent need to address the additional financial pressures that families on a low-income face through greater income support to families with dependent children.”
The Government should use the Job Retention Scheme (JRS) to encourage more workers to self-isolate at home – a key part of the strategy to fight Covid-19 that the current sick pay regime is failing to support – according to new research published by the Resolution Foundation.
The report – Time Out – explores the eligibility, generosity and efficacy of the UK’s statutory sick pay regime and Test and Trace payments during the Covid-19 crisis, and considers the case for reform.
It concludes that with self-isolating continuing to play a crucial role in fighting Covid-19 throughout 2021 as the vaccine is rolled-out, and with the Head of Test and Trace Dido Harding admitting that financial difficulty means some people are refusing to self-isolate, the current system needs to be replaced with a more effective regime.
The report notes that the main support available for employees asked to self-isolate at home is Statutory Sick Pay (SSP). But at just £96 a week, SSP offers the lowest level of Government support provided across any advanced economy during the pandemic. SSP replaces less than a quarter of a typical employee’s previous earnings, compared to an OECD average replacement rate of 60 per cent.
Furthermore, two million employees earning less than £120 a week are not eligible for SSP – a barrier that excludes one-in-four part-time workers, and one-in-seven workers in retail, hospitality and leisure – leaving them with no income at all if they self-isolate at home.
The UK Government has implicitly acknowledged the limitations of SSP by introducing £500 Test and Trace Support Payments (TTSP) for individuals entitled to benefits.
However, the report finds that these more generous payments are not reaching enough people, with only one-in-eight workers entitled to them. For example, data supplied by local authorities across West Yorkshire – an area which has had one of the highest infection rates in the UK over recent months – showed that just 1,783 payments have been made between 12 October and 25 November.
With financial support for self-isolating at home playing a critical role in helping to bring Covid infections down, the report calls for a more effective, generous and easy to deliver support regime to be put in place – using the JRS, Self-Employment Income Support Scheme (SEISS) and Employment and Support Allowance (ESA).
The Foundation proposes the following support:
Employees to be paid via the JRS. Extending the JRS to include self-isolation payments would ensure workers retained 80 per cent of their previous earnings. The Foundation estimates this would cost £426 million a month (up from around £112 million which is spent on SSP) if 643,000 employees used the scheme.
Self-employed workers to be paid pro-rata via the SEISS. Grants of up £830 should be awarded to self-employed workers who need to self-isolate for ten days, if they haven’t already claimed.
Self-employed workers not entitled to SEISS to be paid via enhanced ESA. The many self-employed workers not eligible for the SEISS are entitled to ESA. This payment should be uprated by £20 to £96 a week – in line with the uprating of Universal Credit – while people are asked to self-isolate.
The Foundation adds that while the following package of measures would help to get Covid infections down, the failure of the UK’s sick pay regime should not be forgotten once the pandemic has passed. Permanent reforms to both its eligibility, generosity and operation will be needed, it says.
Maja Gustafsson, Researcher at the Resolution Foundation, said:“Getting people to self-isolate at home is one of the important tools we have in combatting Covid-19. But asking workers to do that often involves a major financial sacrifice – and the UK’s sick pay regime has been woefully inadequate in providing the necessary support. Many more Covid infections will have taken place as a result.
“Coronavirus vaccines will take many months to roll out, so more workers will need to self-isolate at home to contain the spread of the virus next year. Given the failure of the current sick pay regime, the Government must turn now to the far more successful job support schemes to provide workers and firms with the financial support they need to do the right thing.”
TUC general secretary Frances O’Grady commented: “The lack of decent sick pay has been a gaping hole in the government’s Covid strategy. Asking workers to self-isolate on £96 a week is not viable – especially when many don’t have savings to fall back on.”
She warned: “This problem needs fixing urgently. Until people are given sick pay they can survive on they will be forced to choose between following the health advice and paying their bills. Nobody should be plunged into financial hardship for doing the right thing.
“Sick pay should be raised to at least the rate of the real living wage and everyone should be entitled to it. It’s not right that two million workers are excluded from it because they do not earn enough.”
TUC polling published in September revealed that more than 4 in 10 workers would be plunged into financial hardship if forced to self-isolate for two weeks on SSP.
Think tank Resolution Foundation economist Daniel Tomlinson says the UK Government is NOT paying nine million people’s wages. He says the number of workers currently furloughed is half this amount …
From today, employers will start contributing towards the wage costs of furloughed employees (writes RESULTION FOUNDATION’s DANIEL TOMLINSON).
This significant first step in the phasing-out of the Coronavirus Job Retention Scheme (JRS) carries real risks of increased redundancies – particularly for those in the hardest-hit sectors – and so attention should also focus on the important question of just how many people are furloughed today.
Despite significant easing of the lockdown and attention rightly focused on the large number of redundancies announced of late, it’s still common to hear the claim that nine million employees are being paid right now through the scheme. However, this is simply not true. Although it is true to say that in total nine million people have been furloughed for at least one three-week period since March, this cumulative figure does not reflect what’s happening right now. Rather, all the evidence suggests that the number of people furloughed today – as employer contributions towards furlough pay kick in – is likely to be at most half, and maybe even as low as one-third, of this nine million total.
For the millions of workers who have returned to active employment over the past three months, the JRS has served its purpose well. But it may be the case that more than one million employees in the hardest-hit hospitality and leisure industries are still furloughed.
It’s in this context that the impact of the across-the-board increases to employer contributions in August, September and October are a concern. Delaying future increases in JRS contributions for the hardest-hit sectors would help reduce the rise in unemployment forecast in the autumn.
There are not nine million people on the Coronavirus Job Retention Scheme today
The Coronavirus Job Retention Scheme (JRS) has been a very successful and well-implemented policy intervention. It has supported household incomes in the face of an unprecedented shock, and maintained the crucial attachment between employees and their employer.
However, for many firms and employees it will have only ever been used on a temporary basis at the height of the economic shutdown. Many furloughed employees have since returned to work (some on ‘flexible furlough’ for part of their working hours), and a smaller group will have been made redundant already, even before today’s introduction of employer contributions.
But you wouldn’t know this from listening to our politicians and broadcasters. The Prime Minister, claimed on 24 July 2020 that his Government was “supporting the livelihoods of 9 million people now through furlough”. Similarly, the BBC reported on 28 July 2020 that “9.5 million people are using the scheme, the same as a week ago”.
This is wrong. Although the cumulative take-up of the scheme since its launch is in excess of nine million, the actual number of people using the scheme right now – on the day that employers are now required to start contributing to the payroll costs of furloughed employees – is undoubtedly much lower.
Figure 1 shows the increase in cumulative JRS take-up over time, as published by HM Revenue and Customs. These cumulative figures are now entirely meaningless when it comes to understanding the path of the economic recovery or the numbers of people who have been furloughed for a prolonged period of time.
Figure 1: Nine million people have been on the JRS at some point since its launch
All the evidence suggests that the number of people currently furloughed is at most half the nine million total, and could even be one-third of this level
In the absence of official statistics on furlough numbers over time, we can turn to other estimates of furloughing and coronavirus labour market effects from various Office for National Statistics (ONS) surveys, in order to get a sense of when take-up peaked and just how fast it has fallen.
Across the three available data sets stretching back to the announcement of lockdown on 23 March 2020, the consistent finding is that the number of people furloughed or away from work is likely to have peaked in late April at somewhere between seven and eight million employees (Figure 2). The upper end of this range is based on the ONS’s Business Impacts of Coronavirus Survey (BICS), which reported that 31 per cent of the private-sector workforce was furloughed in late April.
Figure 2: The number of people now furloughed is much lower than in late April
Since late April, the number of people furloughed or away from work looks to have fallen considerably. This is unsurprising given restrictions on non-essential retail were lifted on 15 June, and on many parts of hospitality and leisure on 4 July (in England).
The opening up of these parts of the economy, and the general increase in economic activity since the depths of lockdown, will have led to millions of employees returning to work.
For example, the number of people temporarily away from work above and beyond the usual level of temporary work absences (the red line in Figure 2) fell by 40 per cent between late April and late May. This will have been driven primarily by people coming off furlough, but also by reductions in the number of people away from work for other reasons such as shielding, self-isolating or for childcare.
Some of this decline will also be driven by moves off the JRS and into unemployment, although this is likely to be a relatively small part of the story to date as in May, June and July employers had not yet been asked to contribute anything towards the costs of furloughing their employees.
More up-to-date estimates come from the BICS for early July, which suggests that 16 per cent of the private-sector workforce was furloughed at this time. We estimate this equates to around five million people still on furlough at the start of the month.
At the other end of the range, the Opinions and Lifestyle Survey (OLS) shows that the proportion of those who report that they are employed but furloughed fell from 13 per cent of all workers in the period 18-21 June, to 8 per cent of all workers in the period 8-12 July.
This figure, which equates to three million employees, is at the lower end of the range we’d expect, and will have been affected by the introduction of flexible furloughing from 1 July. Many employees who returned to work part-time in July will not have been counted as furloughed in these OLS estimates, but may well have still have the majority of their pay provided through the JRS (and will appear in some of the other series shown in Figure 2).
It would be unwise to lean too heavily on this or any other estimate from one particular survey in drawing conclusions as to the number of people furloughed today. The use of flexible furlough in July could mean that the pace of decline in take-up slowed last month as employees moved from full to flexible furlough, rather than off the scheme altogether. To date there is little evidence on the impact of flexible furlough on business behaviour, but it’s likely that usage of this component of the scheme will be high.
Overall, it is reasonable to draw the conclusion that the number of people furloughed right now, as employers begin making contributions to furloughed employees’ wage costs, is certainly below 4.5 million (half of the commonly cited nine million total) – and may be as low as one-third of this level.
Employer contributions will disproportionately affect workers in hospitality and leisure, so a sectorally differentiated wind-down of the scheme is desirable
Although the number of people furloughed right now is lower than many claim, it is still a large proportion of the workforce – particularly in some sectors. For this reason, the impact of the introduction of employer contributions towards furloughed employees’ wage costs from 1 August should not be taken lightly.
This big change to the scheme will mean that employers will now start paying employer National Insurance contributions and minimum auto-enrolment pension costs for furloughed employees, at an average of £70 a month (equivalent to 5 per cent of the average employee’s wages pre-coronavirus).
This shift will be followed by increases in contributions in September and October and then the ending of the scheme in November, changes which will have large effects on employer costs in sectors where furloughing rates are higher, such as hospitality and retail. We estimate that in these two sectors as many as one million employees (38 per cent) may still have been furloughed in late July (Figure 3).
Figure 3: Four-in-ten hospitality and leisure workers could still be furloughed
The fact that furloughing rates, and therefore the cost of employer contributions, are concentrated in particularly hard-hit sectors strengthens the case for treating these parts of the economy differently from the rest in the months ahead. Employees in these sectors are now at heightened risk of entering unemployment this autumn as employer contributions are introduced today and then increased throughout September and October.
We have previously called for the phasing in of employer contributions to take place on a slower timetable in the hardest-hit sectors for just this reason. The Government could still take this approach with the planned September and October employer contribution increases (to an estimated 15 and 25 per cent of pre-coronavirus wage costs), in order to limit redundancies in sectors like hospitality and leisure.
Further, the imposition of local lockdowns and the very real risk of a broader second wave means that Government must also be clear about what policy will do in these circumstances. In time, flipping the JRS so it subsidises work being done in these hardest-hit sectors, rather than provides payments when work isn’t done, would be more effective way of maximising the amount of work carried out and would be a more sustainable way of providing support to parts of the economy heavily affected by ongoing social distancing.
To date, the JRS has been a clear policy success. However, the challenges of phasing it out, calibrating it to the path of the virus and the return of economic activity mean that the hard work of designing and implementing policy that protects jobs and incomes in this crisis is far from over.
A £200bn economic recovery plan is needed from the Chancellor tomorrow to reflect the unprecedented scale and nature of the crisis Britain faces, and the lack of monetary policy firepower available to support the economy, according to a major new report published today by the Resolution Foundation.
One-in-eight (13 per cent) private renters have fallen behind with their housing costs since the coronavirus crisis started, compared to just one-in-twelve (8 per cent) mortgaged home owners, highlighting how the pandemic has exacerbated Britain’s housing divide, according to new Resolution Foundation research.
The report, based on a YouGov survey of 6,005 UK adults aged 18-65 and supported by the Health Foundation, provides a timely take on the impact of the crisis so far across different housing tenures, including how people have coped with meeting their housing costs, what support they’ve been able to access, and how housing costs have affected their wider spending patterns.
The report notes that one-in-five (20 per cent) private renters have been furloughed or lost their job since the crisis began, compared to around one-in-seven (14 per cent) mortgaged home owners. However, home owners are more likely to have had their hours reduced and less pay (15 per cent, compared to 12 per cent).
An even bigger divide opens up when it comes to meeting their housing costs, says the report. Around one-in-eight private renters (13 per cent) report falling behind on their housing costs, compared to just one-in-twelve (8 per cent) home owners with a mortgage.
The Foundation says private renters’ bigger struggle to meet their housing costs in part reflects the fact that they face higher costs in the first place – their average pre-crisis housing costs were 32 per cent of their family’s income, compared to 11 per cent among mortgaged homeowners.
The survey shows they also have less of a financial buffer to fall back on, with almost one-in-four (23 per cent) private renters having no savings in the run-up to the crisis, compared to one-in-eight home owners (11 per cent).
While renters receive more generous benefit support than mortgagors, home owners with a mortgage have been more successful in accessing support outside of the social security system to cope with the crisis.
One-in-seven (13 per cent) have applied for a mortgage holiday, the vast majority of which have been accepted. In contrast, just one-in-ten private renters have asked for a rent reduction from their landlord (10 per cent), and just half of those requests were successful (50 per cent).
The Foundation notes that this housing cost squeeze has forced many people living in private rented accommodation to cut back on basic spending or, in the case of young people, to move house.
One-in-four (25 per cent) private renters have reduced other spending to cope with meeting their housing costs. Of these renters, half (54 per cent) report currently being unable to afford basics such as fresh fruit and veg, or to save £10 or more a month.
Around one-in-ten (10 per cent) private renters have moved house. Around half (47 per cent) of those who have moved house are 18-24 year olds, while three in five (62 per cent) have moved in with their parents.
Lindsay Judge, Principal Research and Policy Analysts at the Resolution Foundation, said: “Britain already had a huge housing divide before coronavirus struck, and the current economic crisis has only widened that gap.
“People living in private rented accommodation have found it harder to meet their housing costs than homeowners in recent months, and harder to negotiate reductions in those costs. The result is that a quarter are cutting back on other spending, in many cases on essentials, to cover their rent during this crisis.
“Policy makers need to recognise that, while the 1990s recession was infamously most severe for the UK’s home owners, this recession is biting hardest for renters.”
Over one in three 18-24 year olds, and three in ten workers in their early 60s, are receiving less pay than they did at the start of the year, compared to less than a quarter of workers aged 35-49, according to new Resolution Foundation published today.
The report is published on the day it was announced that UK unemployment rose by 50,000 to 1.35 million in the three months to March, when the effects of the coronavirus lockdown started to affect the economy.
The report, Young workers in the coronavirus crisis, based on a survey of 6,005 UK adults in early May and supported by the Health Foundation, examines how the current crisis has already affected workers of different ages in terms of their jobs, pay, hours and working conditions. It is published ahead of official labour market data today covering the three months to March this year (and only the very start of the crisis).
Previous Resolution Foundation research has shown that excluding students, young people tend to be hit hardest during downturns, and are particularly at risk in the current one as they are more likely to work in the hardest hit sectors of the economy, such as hospitality, leisure and retail.
Looking at workers’ current earnings compared to the start of the year, the research finds that employees across all age groups are more likely to be earning less than they did in January than earning more, though young and older workers are most affected.
Among 18-24 year olds, 35 per cent are earning less than they did before the outbreak, and 13 per cent are earning more. Employees in their early 60s are the next most likely to be receiving less pay (30 per cent), with a further 9 per cent receiving more pay. By contrast, 23 per cent of 35-49 year olds are earning less, while 5 per cent are earning more.
The research shows that young people are also the most likely to have lost work – though other age groups have been affected.
One in three 18-24 year olds employees have lost work, either through being furloughed (23 per cent) or losing their jobs completely (9 per cent).
One in five (20 per cent) employees in their late 20s (aged 25-29) have either been furloughed or lost their jobs, along with around one in six (18 per cent) workers in their early 60s (aged 60-64).
Employees aged 35-44 are the least likely to have been furloughed or lost their jobs, with around 15 per cent experiencing this since the crisis began.
The Foundation says the big pay reductions and job losses for young and older employees are a huge concern, for very different reasons.
Younger workers deeply affected by the crisis today risk have their pay scarred for years to come – causing a long-term reduction in their living standards. Older workers risk being involuntary retired well before reaching their State Pension Age, or not having time to make-up their current earnings shortfall. Both risks could cause a permanent hit to their incomes through retirement.
The Foundation says that the scale of pay reductions since the crisis began would be even greater where it not for the Job Retention Scheme. The research finds around one in five furloughed employees are still receiving full pay (despite state support being capped at 80 per cent), including over a quarter of workers aged 35-44.
Finally, the Foundation says that the Government needs to start preparing its response to the next phase of the crisis, which should include policies such as Job Guarantees for young people, and broader fiscal stimulus to boost demand in the economy and raise household incomes.
Maja Gustafsson, Researcher at the Resolution Foundation, said: “Our research confirms fears that young people are being hardest in the current crisis. One in three young people have been furloughed or lost their jobs completely, and over one in three had had their pay reduced since the crisis started.
“But while young people are in the eye of the storm, they are not the only group who are experiencing big income shocks. Britain is experiencing a U-shaped living standards crisis, with workers in their early 60s also badly affected.
“That is why the Government’s strategy to support the recovery should combine targeted support to help young people into work, with more general stimulus to boost demand across the economy and help households of all ages.”
The number of people claiming unemployment benefit in the UK soared to 2.1 million in April, the first full month of the coronavirus lockdown.
The April total rose by 856,500, according to Office for National Statistics (ONS) figures.
Before the lockdown began, employment had already hit a record high before the lockdown began.
The situation is actually even worse than these desperate figures show – benefit claimant count does not include everyone who is out of work, since not all can claim assistance.
Around one in twenty workers report not receiving any holiday entitlement, while around one in ten do not receive a payslip – highlighting the scale of labour market violations across the UK – according to new analysis published today by the Resolution Foundation.Continue reading One in twenty workers say they are not receiving any paid holidays
The Scottish government risks missing its child poverty targets by some distance as poverty levels are set to rise rather than fall over the next five years, according to new analysis published by the Resolution Foundation.Continue reading Child poverty levels ‘on course to rise substantially’
