Low-income families suffering ‘financial scare year’: charity

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Low-income families are enduring a “financial scare year” and making grim decisions like falling behind on bills, going without essentials or taking on costly debt, according to a report.

The Joseph Rowntree Foundation (JRF) said the cost of living crisis and a decade of social security cuts and underfunding are taking a heavy toll.

It used a survey of some 4,000 people with low household incomes in May and June (the bottom 40%, which equates to an income of less than £25,000 for a couple with no children), for the report.

Instead of making the trade-off between heating or eating, one in five (21%) of low-income households were unable to do either: They ran out of enough food and couldn’t keep their homes warm, the researchers found. .

Six in 10 (60%) had not received essentials since the beginning of 2022, or had reduced or skipped meals, or been hungry in the previous 30 days.

Two-fifths (40%) were late on at least one bill. The average amount of arrears on all bills held by all low-income households is £1,600.

This applies to all types of bills, including rent and late loan payments, and is largely due to high amounts of personal loan and credit card arrears, according to the report.

One of the reasons these amounts are so high is because many people have multiple arrears, and this increases the amount they owe, particularly if interest accrues on the debt owed, according to the report.

About 17% of low-income households said they are delinquent on energy bills.

One in nine (11%) low-income households have used credit to cover basic needs like rent or council tax so far this year, in response to rising cost of living. Another 8% said they planned to do this in the next few months.

The report said this “paints an extremely worrying picture” in which households cannot afford to cover basic bills and have to take on interest-bearing debt to stay afloat.

Nearly a fifth (19%) of low-income households owe money to high-cost lenders, including door-to-door and payday lenders and pawnbrokers, as well as illegal loan sharks, the research found.

The Foundation said that while a package of support measures previously announced by Foreign Minister Rishi Sunak to tackle rising energy costs is welcome, cost-of-living payments will “barely touch the sides, let alone help prepare for the coming winter.

The foundation also argued that the way the benefits system is being used to collect some debts is causing severe hardship, often at unaffordable rates.

JRF said it is asking ministers to consider allowing people to pay off their debt more slowly.

Katie Schmuecker, Senior Policy Advisor at JRF, said: “Our research illustrates the terrifying year of financial fear low-income families are experiencing.

“Families across the country have been faced with choices that are simple but grim: falling behind on bills, going without essentials like enough food, or taking on costly, high-interest debt. In some cases they had to do all three.

“No one should be put in this precarious position. The difficulties facing families now are built on the foundation of a decade of Social Security cuts and freezes.

“The Chancellor’s cost of living support package will offer some temporary relief, but instead of lurching from emergency to emergency, the government needs to get ahead of this problem.

“One simple thing you can do immediately to make a difference is to stop deducting debt payments from benefits at unaffordable rates.

“The way the government collects debt is making an already bad situation much worse by making an already low basic social security rate even lower.

“It leaves too little to cover essentials at the best of times, let alone during the biggest cost-of-living crisis in a generation, a crisis that shows no signs of abating.”

JRF is also calling for an increase in Universal Credit (UC) basic rights.

It found that 94% of UC recipients with a deduction from their payments did not have essentials, as did just over three-quarters (76%) of UC recipients without a deduction.

More than seven in 10 (72%) UC beneficiaries with deductions had been hungry in the previous 30 days, compared to four in 10 (42%) without deductions.

A government spokesman said: “We know that people are facing rising prices due to global pressures, so we are providing targeted aid of at least £1,200 to eight million low-income families, welcomed by the JRF, while helping people earn more, which includes a £300 a year tax cut in July and allows Universal Credit applicants to keep £1,000 more than they earn.

“We have twice reduced the amount that can be taken through deductions in recent years to no more than 25%, and we have doubled the period of time over which they can be paid.

“This strikes a balance between people keeping a significant proportion of their pay and making sure priority debts like child support are paid, which is vital for parents raising children.”

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