Government support helped cushion the financial blow of COVID-19, but many faced financial difficulties before payments arrived.
Many recipients of government support after the onset of the COVID-19 crisis saw their income fall one or two months before receiving support. In the period in between, household spending hit a low and non-payment of bills hit a high. This particularly affected the self-employed and those who started claiming universal credit. Many in the latter group experienced falls in income of more than two-thirds in the month before support was paid, and even afterwards their average incomes had fallen by 40% relative to before the crisis.
These are among the findings of new work, funded by the Standard Life Foundation, using real-time bank account data from budgeting app Money Dashboard.
The research finds that:
- New universal credit (UC) claimants have seen, on average, a fall in net income of about 40% during the crisis (even including UC). For households with a furloughed employee (whose employer did not top up their support to full pay) that figure is 13%, and for those receiving support from the Self-Employment Income Support Scheme (SEISS) it is just 4%. However, for each of these groups – and especially for the SEISS – there are people who fell through the cracks and received no support.
- The SEISS on average roughly replaced lost income for recipients. However, some 2 million individuals with some self-employment income – 38% of the total – are ineligible for the SEISS, and will have received no support for any self-employment income losses.
- Between seeing a fall in income and receiving support, recipients of UC and SEISS reduced their spending by 11% and 13% respectively, compared with otherwise-similar households whose incomes were stable. Expenditures picked up again once payments were received. This suggests delays in payment really matter.
- About half of new UC claimants who had been repaying a mortgage stopped doing so,almost entirely before the first UC payment arrived (and likely largely through mortgage holidays). Before receiving the grant, SEISS claimants’ mortgage payments had fallen by around a third, but they mostly bounced back after grant receipt. The number of mortgage payments fell by a quarter for furlough recipients.
- Non-payment of other bills rose among recipients of income protection programmes. Council tax payments fell by 10–20% for these households, with larger declines for new UC claimants. Some SEISS recipients have also fallen behind on rent.
- New UC recipients have to wait five weeks before getting their first payment. Despite the availability of optional ‘advances’ to help cover this spell, housholds experience periods of lower income before getting any support at all. Many UC recipients had a month with lower income before any support arrived; for about 30% of claimants, their income in the month before their first payment had fallen by at least two-thirds.
Isaac Delestre, a Research Economist at IFS and an author of the report, said:
‘In the wake of the crisis, the government implemented two new income protection schemes – for furloughed employees and self-employed workers – and extended an existing one, universal credit. Once the cash arrived, these programmes have provided huge amounts of protection, though to differing extents. But the long-standing controversy over the infamous five-week wait to receive universal credit rightly identifies that the timing of payment is also very important. While those who were furloughed generally experienced no gap between income falls and income support, many universal credit and SEISS recipients had one or two months between the loss in income and the receipt of their support. For many recipients, this seems to have been a tough period, with significant falls in spending and a rise in the non-payment of bills compared with other households.’
Mubin Haq, Chief Executive of Standard Life Foundation, funders of the report, said:
‘At some point, we may need to reintroduce income protection schemes. Although many were supported, lessons can be learned. Millions were excluded or only partially protected, and payment delays have caused financial misery. The pandemic has highlighted the need for a comprehensive income protection package that has the flexibility to adapt to labour market conditions.’