More than three in ten new universal credit claimants have either fallen into debt or seen their existing debts grow

New research also shows that even with the £20 Covid ‘uplift’, almost half of post-March 2020 universal credit claimants report income falls of more than a quarter

More than three in ten new universal credit claimants have either fallen into debt or seen their existing debts grow, new research from the Resolution Foundation has found.

In The debts that divides us, the Resolution Foundation analyses responses to a survey of more than 6,000 universal credit claimants in January 2021 to help understand the financial impact of the Covid-19 pandemic on, in particular, the three million people who have started new claims in Great Britain since the pandemic began.

Key findings include that -

• even accounting for the £20 weekly increase for 2020/2021, one in five of all claimants have fallen behind on essential bills during the crisis and three in ten (31 per cent) of claimants who were new to universal credit since March 2020 have either fallen into debt, or seen their existing debts grow;
• of those families who started claiming universal credit since the crisis began, almost half (45 per cent) experienced income falls of more than a quarter and at least a third (34 per cent) saw their income fall by more than 40 per cent;
• around one in three (32 per cent) of these new universal credit families had no savings going into the crisis, meaning they were more reliant on benefit income to cover all their essential liabilities; and
• more than three in five (61 per cent) of families on universal credit said they will struggle to keep up or will fall behind on bills in the three months up to April 2021, around twice the proportion of families across the economy as a whole (31 per cent).

While the report also finds that the £20 benefit ‘uplift’ has, as would be expected, resulted in some existing universal credit families reporting income rises since February 2020 (around one in five existing claimants reported an increase), it warns that now is not the time to reduce benefit incomes -

‘Removing £1,000 a year from over 6 million families at a time when unemployment is set to reach its peak represents poor macroeconomics, as well as being devastating for the finances of families on a low income, many of whom, as we show here, have little or no savings, and are struggling to keep up with essential bills. Coming on top of recent work showing that the pandemic, and lockdown in particular, has made life more expensive for those on a low income, continuing the uplift is the only right thing to do.’

Senior Economist at the Resolution Foundation Karl Handscomb said -

'Over three million people have started claiming universal credit since the pandemic began, including 1.4 million people who moved onto the benefit right at the start of the crisis.

As the pandemic reaches its eleventh month - a depressing duration few expected last March - the income shock from moving onto universal credit has evolved into mounting debts and arrears on essential bills.

The Chancellor was right to raise universal credit to support families through tough economic times. And with tough times set to continue as unemployment rises through 2021, this vital boost to family incomes must be maintained.

Cutting the incomes of six million families in just two months’ time, when public health restrictions are still likely to be widespread, makes no sense politically, economically, or in terms of raising people’s living standards.'

For more information, see Three-in-ten new Universal Credit claimants have seen their debts grow during the crisis from the Resolution Foundation website.