This analysis explores whether this is a cause for concern, and finds 18% of working-age people in the bottom fifth by income have savings of £16,000 or more, giving them assets to fall back on and making them ineligible for Universal Credit (UC).
Of more concern is the 23% of people on low incomes with low or no savings who are not receiving means tested benefits. This may be because they earn just slightly too much to be eligible, fall foul of benefit rules such as the Minimum Income Floor in UC, are shut out from help because of their migration status, or simply aren’t claiming benefits they are entitled to. Frustratingly, data limitations mean we cannot easily quantify these different groups. Nonetheless their risk of hardship is high in the current context, raising significant questions about who our social security system does and does not protect.
Two steps the Government could take quickly to support people on low incomes with low savings and not in receipt of means tested benefits are:
- Make the Household Support Fund permanent in England, creating a system of properly resourced local crisis assistance in England that can offer cash grants to people in an emergency regardless of their benefit eligibility, and connecting them to wider help and support.
- Launch a take-up campaign for UC to make sure people get the help that is meant for them. Even if they only get a small UC payment it is a gateway to other support with living costs, such as the £900 cost-of-living payment, free school meals or free prescriptions.
Finally, it is essential that work underway in the Department for Work and Pensions (DWP) to improve data accuracy continues at pace. Without this we lack the precision needed to assess take-up and to identify groups not receiving means tested benefits yet in need support, and the best policy options for providing it.
As we head deeper into winter, the reality of the hardship that people on low incomes are facing is becoming ever more apparent. Our recent report on how people are coping with the cost of living has shown the extent of hardship being experienced now (Earwaker, 2022). A steady stream of news stories tells of ambulance call outs for hypothermia (Wilson, 2023), surging foodbank use (Bryant, 2023), house fires from the use of candles and electric heaters (BBC, 2022) and no respite on the horizon (Brewer et al, 2023).
The Government’s recent Autumn Statement confirmed there will be further help, but not until after April. A significant part of this will be a £900 cost-of-living support payment for people on means-tested benefits. But a striking figure has been the 4 in 10 households who are in the poorest fifth of the population but do not receive means-tested benefits (Bell et al, 2022). This leaves some people on a low income facing a surging cost of living without the support from the state that is designed to help. This begs the question of why some low-income families do not receive means-tested benefits – what do we know about them, should we be worried, and what further help might the Government need to provide?
Are low-income families not claiming means-tested benefits struggling?
Looking first at data from JRF’s latest cost of living survey in October 2022 suggests cause for concern. Among working-age households in the bottom 20% by income who report not receiving means-tested benefits:
- 7 in 10 were going without at least one essential (such as enough warmth or basic toiletries over the previous six months, or enough food over the previous month).
- More than half (56%) reported being in arrears on household bills.
These figures are not as severe as for working-age households on means-tested benefits (90% and 74% respectively), but they are still alarmingly high and have grown since May 2022.
|Low-income, working-age households||May 2022||October 2022|
|In receipt of means-tested, working-age benefits||In arrears with any household bills||66%||74%|
|Going without at least one essential or food insecure||81%|| |
|Not in receipt of means-tested working-age benefits||In arrears with any household bills||40%||56%|
|Going without at least one essential or food insecure||69%||71%|
Note: see Going under and without: JRF’s cost of living tracker, winter 2022/23 (Earwaker, 2022) for methodology and definition of ‘going without essentials’.
Source: JRF analysis of Cost of Living Survey May/June 2022 and October/November 2022.
What do we know about people on a low income and not in receipt of means-tested benefits?
Broadly speaking, there are two reasons someone on a low income might not be in receipt of means-tested benefits: either they are not eligible, or they are eligible but they are not receiving the benefits they are entitled to. The sections below take each in turn, although being precise about the size of these different groups is made difficult by data challenges (discussed below).
(1) People on low incomes who are not eligible for benefits
There are multiple reasons someone on a low income may not be eligible for benefits. Some reasons may not concern us too much, for example where someone has substantial savings that make them ineligible. Others might be of more concern, for example when people find themselves just the wrong side of an income threshold or are not entitled at all due to their migration status.
Given the importance of assets in understanding this picture, we use analysis of the Wealth and Assets Survey in this section because it captures savings data more accurately than the Family Resources Survey.[i]
Figure 1: Working-aged people in households in the bottom 20% of incomes
Note: figures are before housing costs and equivalised. Savings refers to money in current and savings accounts, national savings certificates / bonds, UK shares and UK gilts.
Some 18% of people in working-age households in the bottom quintile (1.1 million) have more than £16,000 of savings. This would mean they are not eligible for Universal Credit (UC), and they would be expected to use their savings to get them through a period of low income. If their circumstances do not change, they would potentially become eligible for UC as they run down their savings. But in the short term this group has assets to draw on to help them with the cost of living. In addition to their savings, they also appear to have high levels of net wealth (wealth from pensions, property and material belongings such as cars, minus outstanding debts and mortgages).
Potentially more of a concern is the 23% of people in low-income households with lower or no savings who are not claiming means-tested benefits (1.6 million). While this group has higher net wealth than those who receive means-tested benefits, their level of wealth is well below the average for all households.
There are a number of reasons why these low-income, low-savings households may not be eligible for means-tested benefits, some of which will overlap:
Low earnings: among the low-income, low-savings group not on means-tested benefits, 46% (700,000) are employees. While working people can claim UC, people without children become ineligible at relatively low levels of earnings. A single person with no children and an income of £12,000 or a couple with no children and an income of £18,000 would be in the bottom quintile. Even earning these low amounts, these childless households would not be eligible for UC if they are not receiving help with housing costs – typically this will be working households with a mortgage or people who do not pay rent, for example because they live with family. The inadequacy of the basic rate of benefits for adults (the Standard Allowance in UC), which has hit a 40-year low in real terms, is key here. A higher rate would see support last longer when people move into work and their UC is tapered away as their earnings rise. A family with children and an equivalent level of earnings could still receive UC at these low earning levels as the system is more generous toward households with children.
Self-employed: among the low-income, low-savings and not on means-tested benefits group, 14% of people are self-employed (200,000). While low-income self-employed people can claim UC, there are two scenarios where they might be ineligible.
The first relates to the design of Universal Credit. After a one year ‘start up’ period to establish a business, a self-employed UC recipient who is deemed capable of work and has no caring responsibilities will usually be assumed to be earning the equivalent of 35 hours on the minimum wage, whether they are or not. This is known as the Minimum Income Floor. For a single person without children and no eligible housing costs, they are assumed to earn enough to no longer be in receipt of UC. Assumptions about earnings that are divorced from reality leaves some low-income self-employed people at high risk of hardship.
The second scenario relates to the volatility of self-employed earnings. Because social surveys are only ever a snapshot of someone’s income at a point in time, when a good year follows a bad year, people’s circumstances may appear worse than they are in the survey results because of the way the data is collected. Unfortunately, we cannot easily quantify these different groups.
Students: most students are not able to claim means-tested benefits, although some exceptions are made, for example for students who are estranged from their parents or who are parents themselves. Students make up 7% of the low-income, low-savings and not on means-tested benefits group (100,000).
People with no recourse to public funds: when people come to the UK to work, study or join family they will often have ‘no recourse to public funds’ (NRPF) as a condition of their visa. This means they are unable to claim means-tested benefits. Asylum seekers or irregular migrants (such as people who have overstayed a visa) also have NRPF. Not being able to produce requested documentation – for example as happened to many of the victims of the Windrush scandal – can also result in people having no recourse to public funds in practice, when in fact they should be eligible.
The size and circumstances of the group of people with NRPF is difficult to estimate, and many with a visa to work in the UK will be high earners. Nonetheless, where people are on a low income, or their circumstances change (for example they’re made redundant, break up with their partner or need to flee a violent relationship), having NRPF results in a high risk of deprivation. A recent LSE study focusing just on people with visas to work or join family, estimated there are 362,000 households in this situation 22,000 of whom would be eligible for UC if they could claim it (Benton et al, 2022).[ii]
(2) People who are not receiving benefits they are entitled to
Of course, there are also people not claiming benefits despite being entitled to them. Take-up appears low for some benefits and is unknown for others. It tends to vary with income and the size of the award, with take-up higher where earnings are lower (or no earnings) and where people are entitled to a larger amount.
There is a range of reasons people don’t claim what they’re entitled to. These include not being aware of entitlement, the stigma attached to claiming benefits, complex application processes, a lack of support to navigate them, and bad experiences of assessment processes and benefit administration putting people off. It is certain that some of our group with low income, low savings and not on means-tested benefit will be entitled, but it is hard to estimate the exact size of this group.
Frustratingly, despite increasing take-up being one of the expected benefits of introducing Universal Credit, no take-up data for Universal Credit is currently published. The table below sets out the most recent estimates of take-up of other means-tested benefits from the DWP and HMRC.
|Year||Benefit||Take up rate|
|2019/20||Housing Benefit (pensioner households only)||84%|
|2018/19||Housing Benefit (all households)||81%|
|2018/19||Income Support and income related Employment and Support Allowance||90%|
|2017/18||Child Tax Credit||84%|
|2017/18||Working Tax Credit||67%|
|2016/17||Jobseekers Allowance (Income-based)||56%|
However, take-up at least for tax credits is likely to be higher than these figures indicate, as the method for calculating these estimates has been called into question. This is because social surveys are used to make the calculation, and they substantially under-report benefit income (Bangham and Corlett, 2018; Corlett, 2020). The DWP has been taking steps to improve this by matching people’s reported income to administrative data. This is welcome, but without the DWP completing this work and producing some statistics on the take-up of UC, it is hard to judge how big this problem is.
The proportion of households in poverty claiming means-tested benefits appears to be falling fast
Focusing in on working-age households in poverty (less than 60% of median income, after housing costs, with no pensioners in the household), it is deeply concerning to see the proportion of households in poverty and in receipt of means-tested benefits appearing to steeply decline in recent years. Means-tested benefits should be there to support people through hard times, but this trend implies more people who need help are missing out.
Figure 2: Households in poverty reporting receipt of means-tested benefits or tax credits
There are several forces that could be driving this trend. For example, the sharp decline after 2013/14 coincides with a period of welfare reform including cuts, freezes and caps being applied to benefits and tax credits. Universal Credit was also rolled out during this period, with a stricter savings limit compared to tax credits. These changes had the effect of tightening eligibility, which could exclude more people in poverty. The changing nature of poverty could also play a part, with poverty rising among younger people, working households and private renters creating different patterns in benefit eligibility and take-up. Stigma and barriers caused by benefit application and administration processes could also be having a dampening effect on benefit take-up.
A further possibility is an increase in under-reporting of benefit income to the Family Resources Survey (FRS). The Resolution Foundation have charted a growing gap between reported income from benefits and tax credits in the FRS and administrative data on expenditure (Corlett, 2021); however the shape to the two graphs differs considerably, suggesting that while this is an important part of the picture, it is not the whole picture. We urgently need to understand this trend better, and that requires better data.
The Government is making slow progress toward improving the accuracy of surveys by matching people’s reported income to administrative data. This has been long in development, with thinking on the methodology for achieving this going back over a decade (see for instance McKay, 2013). This work is difficult[i], but it will be worth it for more accurate data on benefit take-up and poverty. It must continue at pace and ultimately be integrated into the official statistics.
What should policymakers do?
To state the obvious, eligibility thresholds are all or nothing – and if you’re just on the wrong side of the line, you get nothing. This is always the case, but it is a particular problem right now for people who find themselves just outside eligibility for means-tested benefits. These households won’t get the additional cost of living payments targeted at people on means-tested benefits announced in the recent Autumn Statement, despite the pressure of energy and food prices biting hard on their spending power, and hardship rising.
The Government has stated it doesn’t intend to repeat broad-brush support, such as the £150 council tax rebate or the £400 energy bill refund, but it will continue the energy price guarantee, capping the average bill at £3,000 from April. This protects people from the full market price for energy, but it is still around a threefold increase on the average bill in 2021.
The Government is currently developing a new approach to consumer protection in the energy market, such as a social tariff. This is welcome, and this analysis begins to identify some of the groups beyond those on means-tested benefits that need to the targeted by such protections.
But this analysis also raises some big questions about who our social security system protects, and who it doesn’t. We may not be too concerned about people on low incomes with high savings and other wealth to fall back on. But the people without this cushion are of greater concern. Whether they earn just slightly too much to be eligible, fall foul of benefit rules such as the Minimum Income Floor, are shut out from help because of their migration status, or aren’t claiming benefits they are entitled to, their risk of hardship is high in the current context.
Two steps the Government could take quickly to support people on low incomes with low savings are:
Make the Household Support Fund permanent in England. The Household Support Fund should provide help to people that are not eligible for benefits. But the fact it is now on its third iteration indicates it is no longer extra-ordinary help. Instead of ploughing ad hoc money into a fund where the criteria subtly change each time, it is time to recognise the role for a system of properly resourced local crisis assistance in England. At the heart of such a system should sit cash grants to help people get through emergencies regardless of their benefit eligibility, administered by the local authority. This should connect to and knit together the wider help and support available locally through community action and the voluntary sector, such as benefits advice, help with problem debt, access to food and other forms of mutual aid.
Launch a take-up campaign for UC. It is essential that the Government does everything it can to make sure people are getting what they are eligible for. While the Government has kicked off a campaign to encourage people to claim Pension Credit, no such campaign exists for UC. Eligibility, even for just a small amount of UC per month, is a gateway to other support – be that the £900 cost of living payment in 2023/24, free school meals or free prescriptions. This is surely the ideal incentive to build a campaign around. The Government should be shouting this from the rooftops to make sure everyone gets the help that is meant for them.
Finally, it is essential that work to improve data accuracy continues at pace and is integrated into the official statistics. Without this we lack the precision needed to assess take-up, and to identify groups not receiving means-tested benefits who are in need of support, and the best policy options for providing it.
[i] While WAS contains more detailed data on wealth and assets, the FRS has more detailed data on incomes. We repeated the analysis to see what proportion of people in the bottom quintile, and not in receipt of means-tested benefits, had savings over £16,000 using FRS, and got a similar result (16%).
[ii] The study assumes the claim rate would be the same as for other ‘foreign born’ households who do have recourse to public funds (Benton et al, 2022) https://data.london.gov.uk/dataset/scba-nrpf-policy-in-london
[iii] For example, decisions will have to be made about how to manage the break in the poverty time series that a new methodology would create, and it is likely some parallel estimates will be needed. This work also begs the question of whether other aspects of income reporting might need adjustment too. In addition, there is a question of whether adjustments should be made to respondents who are unable to be linked to administrative data (although this number should be small).