Households faced difficulties before Covid financial support arrived, says IFS
Many households receiving financial support after the coronavirus crisis struck suffered a tough period of income falls for one or two months before the cash arrived, according to the Institute for Fiscal Studies (IFS).
It said that while Government support helped to cushion the financial blow of Covid-19, many faced difficulties before payments kicked in.
In the period between, household spending declined and the non-payment of bills increased, the IFS said, with the self-employed and those who started claiming Universal Credit (UC) being particularly affected.
The report said some in the latter group experienced falls in income of more than two-thirds in the month before support was paid.
The research was funded by the Standard Life Foundation, which aims to improve living standards for people on low-to-middle incomes in the UK, and used real-time bank account data from budgeting app Money Dashboard.
It found that new UC claimants have seen, on average, a fall in net income of about 40% during the crisis.
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 4%.
The report also said some people fell through the cracks and received no support.
Between seeing a fall in income and receiving support, recipients of UC and SEISS reduced their spending by 11% and 13% respectively, compared with similar households whose incomes were stable, the research found.
Spending generally picked up again once payments were received – suggesting the wait for payments to kick in matters to recipients.
About half of new UC claimants who had been repaying a mortgage stopped doing so before the first UC payment arrived, probably largely through taking mortgage holidays, the research found.
Isaac Delestre, a research economist at the 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 the Standard Life Foundation, said: “The pandemic has highlighted the need for a comprehensive income protection package that has the flexibility to adapt to labour market conditions.”
A Department for Work and Pensions (DWP) spokesman said: “We have provided £9.3 billion extra welfare support to help those most in need, including increasing Universal Credit by up to £20-a-week, as well as introducing income protection schemes, mortgage holidays and additional support for renters.
“With Universal Credit no-one has to wait five weeks to be paid, as urgent advances are available, and more than one million payments have been made to new claimants within days of a request since the start of the pandemic.”