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The scale of the challenge: JRF's pre-election cost of living tracker

With levels of hardship in May 2024 unchanged for the lowest-income families in the last year, the cost of living crisis is far from over. 

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Reality for low-income households in May 2024

The sixth wave of our cost of living tracker was completed in the same month the 2024 election was called. It sets out the scale of the challenge for the UK’s next Government, with levels of hardship remaining wholly unacceptable. Surveying 4,092 households in the bottom 40% of incomes between 26 April and 9 May 2024, we find that:

  • 7 million low-income families (60%) reported going without essentials like food, showers, heating and toiletries in the 6 months to May 2024, including 5.4 million experiencing food insecurity in the 30 days prior to the survey.
  • 4.3 million low-income families (37%) are in arrears with at least one household bill or credit commitment, and 1.2 million are in arrears with 4 or more bills. The total amount of arrears owed by low-income households is around £6.3 billion, with an average amount owed of around £1,400.
  • 3.8 million low-income families currently hold £7.5 billion worth of debt through loans originally taken out to pay for food, housing or essential bills like council tax or energy.

While there has been improvement for some across key hardship indicators compared to our last survey in October 2023, this hasn’t been the case for everyone. For the lowest-income families and those on Universal Credit we have seen no change in the proportion going without essentials, with 7 in 10 families in the bottom income quintile, and the 86% of low-income families on Universal Credit, going without the essentials in May 2024. Alleviating hardship for families on the lowest incomes must be an urgent priority for the next Government.

Economic backdrop: a mixed picture of costs relative to incomes

There has been a return of some positive economic indicators, however it’s a mixed picture when we look at the costs households face relative to their incomes. This mixed picture means for some their finances are improving, while many on the lowest incomes are yet to feel any relief as they continue to deal with the impacts from the pandemic and cost of living crisis: 

  • Inflation returned to 2% in May 2024 after being above 3% between August 2021 and March 2024, and peaking at 11.1% in October 2022.
  • The average cost of essentials2 is forecast to stabilise, following a rapid increase of 24% between 2021 and 2024.
  • Average benefit rates have increased but still lag inflation and earnings. Importantly, uprating of 6.7% and unfreezing of the Local Housing Allowance from April 2024 wouldn’t have been felt by families until at least mid-May1, after our data was collected. 
  • Earnings growth is improving relative to inflation, but average post-tax earnings are still not estimated to surpass inflation during the forecast period to 2029. 
  • Interest rates have remained steady at a 15-year high of 5.25% since August 2023 but there is speculation of rate cuts from the 2nd half of this year.

The economic reality for low-income families is how they experience changes to their incomes and their costs. It’s clear that the positive changes we’ve started to see haven’t been anywhere near big enough to address the scale of hardship the UK is experiencing.

We explore the current state of hardship across 3 key themes: going without essentials, being in arrears and taking on debt, and struggling to cope through the crisis to date. They all demand urgent attention.

Going without essentials

Levels of hardship remain high, with the number of low-income households going without essentials like food, showers and adequate clothing not falling below 7 million in the 2 years we have been tracking the cost of living crisis (see Figure 2a below).

As in previous waves, food is the most commonly forgone item, with 5.4 million low-income households (46%) in food insecurity in the 30 days prior to the survey in May 2024, including:

  •  5.1 million low-income households (44%) cutting down on the size of meals or skipping them,
  •  4 million (34%) going hungry (see Figure 2b).

These questions on food insecurity mirror those asked in the Family Resources Survey (FRS), which give us a sense of trends compared to pre-pandemic. While the results are not directly comparable due to different research methods, the difference is unlikely to be fully explained  by technicalities around survey design and data collection alone. In the 2019/20 FRS 14% of all working-age families in the bottom 40% of the income distribution reported either cutting down or skipping meals or going hungry in the last 30 days. In our May 2024 survey, we find 58% of all working-age households in the bottom 40% of incomes were in food insecurity, indicating hardship is trending far above pre-pandemic levels.

While the overall proportion of low-income households going without essentials has slightly improved in the last 6 months from 63% in October 2023 to 60% in May 2024, this has not been felt equally. For households on the lowest incomes hardship has not budged since May 2023 with 7 in 10 going without essentials (71%). Any improvement has come from those with incomes in the 20th to 40th percentile (between £20,649 and £28,209 equivalised per year). Even then, half of all these households (49%) were going without the essentials in May 2024 as Figures 2c shows. We are a long way from the crisis being over.

In May 2024, 86% of low-income families on Universal Credit went without essentials, unchanged from a year ago despite the uplift in April of 2023 of 10.1% and cost of living payments totalling £900 during this time. While the impact of uprating benefits and reinstating the frozen Local Housing Allowance to cover the bottom 30% of local rents from April 2024 is not captured in these findings, the fact that hardship for those on Universal Credit has not budged in the last year despite uprating shows us that uprating alone is not enough to shift the dial on hardship. These benefit changes were the bare minimum needed to support families who need our social safety net.

Compared to all low-income households some demographic groups remain at much higher risk of going without essentials (Figure 2d). Around 8 in 10 low-income families in private (76%) or social rented accommodation (78%), those with survey respondents of black ethnicity (79%), and 9 in 10 survey respondents aged 18-24 (89%) all reported going without in the last 6 months.

Falling behind on your bills and taking on expensive debt

Getting behind on your bills or having to take on expensive debt can have devastating financial consequences that stay with you for years.

If you fall behind on your bills or credit commitments it can impact your credit rating, ability to access credit, the number of companies willing to sign you onto contracts, and your ability to rent a property. It can also be very expensive to fall behind on your bills as, in many cases, you accrue greater costs and fees. Taking on credit or loans to help pay your essential bills, particularly if you’re paying high amounts of interest and fees or if your repayments take up a substantial portion of your (already low), income is an expensive and often unsustainable solution to the problem of inadequate income.

Falling behind on your bills

We find that 4.3 million low-income households are currently in arrears (37%). While this number is wholly unacceptable, it has fallen by 500,000 since October 2023, to its lowest level since October 2021 when we first began our tracker (see Figure 3a). The average amount owed is £1,400, down from £1,600 in October 2023.

Looking at the depth of arrears, we find that 1.2 million low-income households (28% of those in arrears) are behind on 4 or more bills, which is an improvement on the 37% from October 2023 (see Figure 3b). A smaller number of households behind on lots of bills is good news, as the average amount owed rises with the number of bills you’re behind on. If you’re in arrears with 1 bill, the average amount owed is £560, but for those in arrears with 4 or more bills, this rises to £2,500 (see Figure 3c).

Overall, low-income households owe £6.3 billion in arrears across all household bills and credit commitments. 40% of this is made up of rent, mortgage, council tax and energy arrears, 4 bills that can have big consequences if fallen behind on, including losing your home. Low-income households currently owe around £2.5 billion worth of arrears across these high-consequence bills.

As with the essentials picture, not all low-income households are faring equally. As shown in Figure 3d, if you are on a low income and have children, you’re under 34, you’re paying housing costs, if you’re of black, mixed or Asian ethnicity, you are much more likely to be in arrears than families with no children, if you’re over 55, if you own your home outright or if you’re white. Families in the bottom income quintile are also yet to experience any relief, where the proportion in arrears hasn’t shifted from 47% across the last 18 months. Having savings, even just as £200, is an enormous protector of keeping you from falling behind with your bills, you’re more than 3 times as likely to be in arrears if you don’t have this buffer, than if you do (62% compared to 20%).

Taking on expensive debt and being declined for loans 

Across all unsecured loans and credit (see methodology note), we find that the total amount of debt currently held by low-income households has continued to fall over the last 2 years, from around £26 billion in May 2022 to around £19 billion in May 2024. As well as the total amount, the proportion of low-income households holding debt has also come down slightly across almost all loan types.

As shown in Figure 4a, a particularly positive trend is that the proportion of low-income households with a loan from an unregulated lender (such as a loan shark) has fallen from a peak of 16% in October 2022, to 9% in May 2024. Similar trends can be seen across other high-cost credit loans as well, but overall it remains concerning that 2 million low-income households continue to hold these kinds of debts.

We asked about loan repayments across all loan types, including government debt for the 1st time in this wave of the tracker, and found the ratio of income to average monthly loan repayment is 19%, and that 24% of all low-income households with lending are paying more than 25% of their income on their loan repayments. The average monthly loan repayment is around £320. Mirroring part of the Wealth and Assets Survey’s definition of problem debt, we find that around 820,000 low-income households (7%) are currently in problem debt due to liquidity problems, as they have monthly debt repayments of more than 25% of their net income, and they’re in arrears.

While not perfectly comparable due to different survey collection methods, the 2016-2018 Wealth and Assets Survey found that around 3% of low-income households were experiencing problem debt due to liquidity problems. This suggests that the issue of problem debt has worsened since pre-pandemic for low-income households. This suggests that the issue of problem debt has worsened since pre-pandemic for low-income households.   

The credit market is a complicated landscape where millions have loans used to pay for food and housing but the tightening availability of affordable credit due to stricter affordability requirements, a higher interest rate environment and regulatory changes, is an issue. This tightening will not have been the sole contributor to the levels of lending to low-income households falling, but is likely to have played a role.

Almost 6 in 10 low-income households applied for credit in the last 12 months, and 1.6 million households (26%) were declined, while a further 450,000 households did not apply at all because they thought they would be declined. As shown on Figure 4b, low-income households with black respondents who applied for credit in the last 12 months were almost twice as likely to be declined as all low-income households.

The need for cash doesn’t disappear with a declined loan, as shown in Figure 4c. Of those who were refused credit in the last 12 months, almost all (95%) reported going without essentials and 85% reported currently being in arrears with at least one household bill. Unsurprisingly, those who are refused mainstream credit may need to turn to higher-cost credit, or illegal money lenders. We find that over a third of those who have been refused regulated credit options hold loans with loan sharks, doorstep lenders, payday lenders, and pawnshops, almost 4 times more likely for each loan type than those who successfully applied for credit.

Struggling to cope

Low-income households continue to have to make impossible decisions on where to cut back or take on debt to pay for their essential bills due to insufficient budget to meet their costs.

Of the 5.3 million low-income families holding unsecured loans or credit totalling £19 billion overall (see previous section), we find that 3.8 million families owed £7.5 billion worth of loans that they had originally taken out to pay for either food, housing (rent or mortgage), or essential bills (like energy or council tax) (Figure 5a). This number has come down since we first surveyed in October 2023 when 4 million households held £9.2 billion worth of loans that had been taken out to pay for these essentials.

It is hard to be certain, based on the available evidence, how much the fall in debt is due to families paying back what they owe, and how much is due to them being declined further credit and having to make sacrifices elsewhere. But the overall number of families going without essentials falling slightly, alongside a fall in outstanding debt, is positive.

We also asked low-income households what further measures they had taken to cope with the rising cost of living over the last 3 years, and found that:

  • 6.8 million low-income families (58%) reduced their use of appliances
  • 5 million low-income families (42%) reduced the numbers of showers they take
  • 3.7 million low-income families (32%) sold their belongings
  • 1.6 million low-income families (13%) turned off their fridge or freezer.

With over 15% of low-income households heating their home less than required or reducing their use of appliances to save money for the first time in the last 6 months to May 2024 (Figure 5b below) the cost of living crisis is far from over. The nature and scale of the action families are having to take to try to reduce their spending is deeply concerning, and again concentrated in families in the bottom 20% of incomes (Figure 5c). Over 4 in 10 families in the bottom 20% of incomes (43%) have used 10 or more of the 20 actions we asked about, demonstrating the compounding pressure these families are under just to get by. 

Unsurprisingly this financial strain is impacting all facets of people’s lives (Figure 5d). Almost half of survey respondents said the cost of living crisis has had a very or somewhat negative impact on their mental health (48%) and on their sleep (46%) in the year to May 2024. Some of the consequences of the crisis are likely to have a long-lasting effect, with 4 in 10 people saying it has had a somewhat or very negative impact on their diet (40%) and on their physical health (39%), placing additional pressure on public services which are struggling to cope.

Tackling hardship must be a priority for the next UK Government

This briefing has set out the reality currently facing low-income households which the new Government will inherit. While there are some promising signs with fewer low-income households going without the essentials, in arrears or debt, this is only 1 data point and there is much further to go. This is particularly the case for families on the lowest incomes who have yet to see any reprieve from the cost of living crisis, and tackling hardship for this group must be an urgent priority for any incoming Government.

Methodology

Note

  1. While uprating for Universal Credit comes into effect from the first Monday of the new tax year, 8 April 2024,  households will not receive their first payments at the higher amount until between 14 May and 13 June 2024. This is because Universal Credit is paid monthly in arrears, a week after the assessment date. This same timing applies to the Local Housing Allowance amount of Universal Credit.
  2. The essentials are modelled to match the items in the JRF and Trussell Trust Essentials Guarantee basket, which includes: Food, energy, water, clothing, communications, travel and sundries. The change is price is then   projected using data from the Living Costs and Food Survey and OBR CPI projections as at March 2024.
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