The cost of living crisis is a familiar phrase among UK households in 2022 as rising inflation, tax increases and high energy prices continue to make headlines. This is in part due to the ongoing impact of the Covid-19 pandemic which caused large-scale disruption to supply chains and industries across the country in 2020 and 2021. But to what extent has the pandemic had a negative financial impact on people in the UK? And do households have the necessary financial resilience to endure this crisis? We spoke to Professor Sharon Collard, Professor of Personal Finance and Research Director of the University of Bristol Personal Finance Research Centre (PFRC), on our latest episode of Covid Matters to find out more.
Professor Collard has been leading the team reporting on the financial impact of the pandemic on UK households since the early outbreak of Covid-19. The Coronavirus Financial Impact Tracker Survey is a series of online surveys conducted throughout 2020 and 2021 by YouGov, commissioned by the abrdn Financial Fairness Trust. The findings of each survey are based on responses from almost 6,000 individuals who are nationally representative of the UK population and relate to questions on household incomes, savings, bills and debt, tailored across the pandemic to suit ongoing developments. The most recent data recorded in October 2021 was published in December last year.
Understanding and Assessing Financial Resilience
Professor Collard explains that one unique aspect of the Coronavirus Financial Impact Tracker Survey is that the answers given help to produce a measure of household financial well-being. She says, “We're taking people's answers to look at the extent of financial strain that households are under, but also their ability to cope with that financial strain.” As a result, the UK population can be segmented into four groups, depending on their financial well-being score out of 100:
Financially secure: 75+
Potentially exposed financially: 50+
Struggling to manage: below 50
In serious financial difficulties 0-25
The data published in December reveals that while 4 in 10 (10.5 million) households were financially secure, more than one quarter (7 million) households were struggling to manage or in serious financial difficulties following the pandemic. What’s surprising, however, is that the overall picture of financial well-being in the UK has remained largely consistent over the course of these surveys, with the same proportions of households appearing in each category throughout.
Financial Resilience Gap
A household’s financial situation upon entering the pandemic is shown as a determining factor in their ability to endure the financial hardships that it brought. Financially secure households, for example, were likely to have a stable income, the option to work from home and savings set aside for emergencies. While those who entered the pandemic in a worse financial situation were on lower incomes with less savings, meaning they had to sacrifice more of their resources to get by. Data shows that low-income groups were also more likely to be furloughed or lose their jobs, furthering the extent of inequality they experienced.
The disparity between groups and their ability to cope with the financial impact of the pandemic is termed in this survey as the Financial Resilience Gap. Professor Collard explains, “What we mean by that is the gap between households that can deal with a financial shock like losing a job, going through a divorce, or welcoming a new baby into the family, and those that can’t. Those things can make financial management difficult so it’s the gap between households that can deal with them and households that have less of a buffer to do so.”
Pre-pandemic data shows that about 30% of UK adults had low financial resilience. In other words, they had no safety net in the event of a financial shock. This was due to things like stagnant incomes, increased borrowing and low savings. While experts predicted a further decline as the pandemic hit, the impact was less pronounced than originally forecast. Job support schemes were broadly successful and helped to protect jobs and incomes in the labour market. Nevertheless, where households have felt the effects of the pandemic, the impact has been significant: The Coronavirus Financial Tracker Survey reveals that for every household that saw their financial situation get better over the course of the pandemic, two households saw their financial situation get worse.
For these households, a “vicious cycle” began whereby earnings, jobs, and health were all threatened by the pandemic, leading to a steep decline in their financial well-being. Professor Collard says, “When you've had a big hit to your income or your health, you might draw on savings you had to try and manage. And when that runs out, you might need to turn to borrowing in order to keep afloat”. This resulted in low-income households feeling the lasting impact of the pandemic more than 18 months after it started whereas 21% of households on a “virtuous cycle” saw their financial situation improve.
The Financial Resilience Gap highlights problems with the distribution of wealth in the UK. This issue was monitored by the Resolution Foundation, who observed a growth in wealth inequality over the course of the pandemic. Professor Collard says, “What we've seen is the richest 10% of UK households gained over £50,000 per adult in wealth, while the poorest 30% of the wealth distribution gained just £86 per adult on average in additional wealth.” This means that those with assets like owning a home, have seen their wealth and property values increase while those without such assets struggle to meet the rising threshold.
The Coronavirus Financial Impact Tracker Survey identifies four main groups which have been consistently negatively impacted by the pandemic, financially. They are:
Householders with a disability or health problem
Households on Universal Credit or unemployed
Black and Minority Ethnic Groups
They are described in the survey as the “Missing Voices” of the pandemic. Professor Collard explains this is because their situations received little attention from the media or from policymakers during that time. She says, “It felt like what was reported was the big picture about how the UK had managed to economically weather the pandemic. But actually, when you dig down into the details about different groups, there are some who are really struggling to manage.” Adding to the struggle of these affected groups is the fact that help provided by the government in furlough schemes or the temporary uplift in Universal Credit overlooked many of these individuals as ineligible. They had to suffer through without any extra monetary support.
Professor Collard believes that persistence is key to make sure the Missing Voices are heard and that proper actions are taken in future to help them. “When we look beyond the big picture, we really need to think about the groups that have been badly affected and what type of support they need.” It’s for this reason that representation matters amongst government and national bodies, to ensure that demands are met which accommodate those in need.
Closing the Gap
The sixth and final Coronavirus Financial Impact Tracker Survey will be conducted in 2022 and aims to asses the potential longer term financial impact of the pandemic. In the meantime, Professor Collard and her team at the University of Bristol’s Personal Finance Research Centre continue to share their findings with government departments and organisations to support campaigns for better financial aid and a more equal distribution of wealth in the UK. She says, “The lesson is very clear: we need to tackle the financial resilience gap. The pandemic and now the cost of living crisis have made the situation worse and we need some serious efforts to try and close that gap.”
The financial landscape ahead looks bleak for many households in the UK as April is set to bring another crunch point with energy prices and tax increases. This means less opportunities for households in financial difficulty to recover. “The big question,” Professor Collard explains, “is how do you help people come back from that situation? Because it leaves people in a very vulnerable situation financially. And, we know that being in a difficult financial situation can impact other areas of life, like your mental health, for example.”
If you, or someone you know, is struggling with money, there are free, impartial advice services available to help. The sooner you talk to someone and get help, the better.