The research also shows that the impact of COVID-19 comes on top of poor economic performance in 2019 (a likely result of Brexit uncertainties). Economic growth was negative and in the fourth quarter of 2019 it was zero. Furthermore, unemployment, under-employment and zero-hour contracts had all increased in 2019, while wages had started to fall in real terms towards the end of that year and into early 2020.
The 2020 briefing, now in its eighth year, highlighted that even though strains on family budgets were there prior to the pandemic, the impact of COVID-19 on top of this situation looks set to be monumental. From just March to May 2020, between one quarter and one third of jobs were furloughed, and from March to April that year there were 2 million more claims for Universal Credit than there had been in the same period in 2019. By the end of May 2020, 28 per cent of the population said that COVID-19 had had a direct negative effect on their income.
For some households the Job Retention (furlough) Scheme and the boost to Universal Credit have been incredibly important interventions to support people’s incomes. However, those on ‘legacy’ benefits, are not seeing the same level of income protection, leading to a two-tier benefit system.
Karen Rowlingson , Professor of Social Policy and a member of the Centre on Household Assets and Savings Management (CHASM) at the University of Birmingham, and co-author of the report said:
"COVID-19 has had, and is likely to continue for some time to have, a devastating impact on UK household finances. But it is important to note that, even prior to the pandemic, family budgets and the UK’s economy more generally were already faltering in many ways, possibly as a result of Brexit-related uncertainties during 2019."
"Our research shows these are extremely difficult times for the country and many within it. Some statistics reveal, however, that a significant minority of the population is unaffected, financially, by COVID-19 or, indeed, are somewhat better off financially as their incomes remain the same but their expenditure drops. Inequality is rising still further as a result."
Other key findings of the report show:
- Unemployment had started to increase even before the COVID-19 crisis, possibly due to Brexit-related uncertainties.
- Underemployment was similarly trending slightly upwards again to 2.5 million in December 2019. And the number of zero hour contracts also began increasing again in 2019 to a record high of 974,000.
- The Trussell Trust has seen a doubling of emergency food parcels going to children in April 2020 compared to April 2019.
- Prior to the COVID-19 crisis, nearly 2 million families (6 per cent) said that they could not keep up with bills and regular debt payments according to 2018/19 data. Levels of problem debt were highest among renters, particularly council and housing association renters with Council Tax debt being the most common type of debt in 2018/19.
- There has been an increase in the last year from 1,590 mortgage possessions in the third quarter of 2018 to 2,130 in the third quarter of 2019.
- There is slightly more positive news in relation to financial inclusion with the number of people ‘unbanked’ reaching an all-time low in 2018/19. But there is growing concern about access to cash as bank branch closures escalate and free cash machines continue to disappear from local high streets.
Steve McKay, Distinguished Professor in Social Research from the University of Lincoln and a co-author of the report says:
"COVID-19 has led to an increase in already high levels of anxiety about finances with an estimated 4.6 million people now in arrears on household commitments totalling around £6 billion. As the furlough scheme finishes at the end of October and the eviction ban on tenants has already ended we will see a further rise in personal debt and people losing their homes"
Financial Inclusion Annual Monitoring Briefing Paper 2020 .