The coronavirus (Covid-19) pandemic could potentially unleash financial chaos for some of the poorest people in the UK. A new study has found that many of us have no financial safety net in the event of a crisis. But what the research doesn’t say is that it’s some of those at the bottom of society who’ll be hit hardest. And thanks to Universal Credit, that group is about to get a whole lot larger.
Coronavirus: people are not prepared
The financial advice company OpenMoney surveyed 2,000 people with YouGov early in March. It was asking people about their financial situation in the event of losing their incomes. The results made for worrying reading.
OpenMoney found that:
- Only 18% of people had enough in savings to cover essential costs like housing for two months or less. This was based on people’s income stopping.
- 21% had no “immediately accessible” savings at all.
A separate YouGov poll has found that 5% of people have lost their jobs due to coronavirus. 9% have had their pay or hours reduced.
Mounting financial precarity
But the OpenMoney research went further. It paints a grim picture of people’s financial well-being. The research found that:
- In the past two years, 12% of people “experiencing financial difficulty” had fallen behind on paying essential bills. Meanwhile, 10% had “missed a loan or debt repayment”.
- In the last 12 months, 44% of people ran out of money before payday at least once. 34% used short term credit to pay for something.
- 30% of people were “rarely or never able” to put money into savings.
- 49% of people had difficulty keeping up with their “financial commitments”.
- 60% of households owed some form of debt. 32% of those had credit cards.
As CEO of OpenMoney Anthony Morrow noted:
Our research makes it clear that many households were already in a fragile financial position and the additional economic uncertainty created by Covid-19 may push people into further difficulties.
When you look at the impact of the pandemic on people’s lives, the potential financial catastrophe that’s looming looks even worse.
As the Guardian reported on 25 March, nearly half a million people had applied for Universal Credit in just a matter of days. That figure is likely to have grown since. Department for Work and Pensions (DWP) boss Thérèse Coffey said it wasn’t clear how many of these people were self-employed. Those who are could be faced with a double whammy of financial chaos: not only having no savings, but also having to apply for benefits.
Research from investment company Fidelity found that 30% of self-employed people are unable to put any money aside for savings. That’s around 1.5 million people. So, many of these may well have applied for Universal Credit already. But the controversial benefit may make their problems even worse.
As The Canary previously reported, the DWP’s response to the pandemic is riddled with dangerous faults. These are built into the Universal Credit system. Not least of which are:
- New claimants who can’t verify their ID online having to go into jobcentres. This is despite the UK government’s ‘stay at home’ order.
- The DWP is still making new claimants wait five weeks for their first payment. This could potentially leave countless people in severe financial difficulties.
- Sick and disabled new claimants still having to wait up to three months for extra money.
The five-week wait for a first payment could be the most damning part. The government has said it will financially support many self-employed people. But it’s not rolling out payments until at least June. So some self-employed people could literally be left destitute in the meantime.
A ticking time bomb
Delaying support for months, coupled with Universal Credit delays and countless people having no savings, is a ticking financial time bomb waiting to go off. Research in 2019 showed that almost half of self-employed people were already earning “poverty pay” which was less than the minimum wage. Now, with the fallout from the pandemic already starting to bite, the situation could spiral out of control. And its effects could be wide-reaching and long lasting.
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