Policy in Practice’s latest analysis shows that 1 in 7 low-income Londoners can’t make ends meet. Our analysis of 550,000 low-income London households finds a 21% rise in low-income Londoners facing a cash shortfall since 2016. The number of families who are struggling is expected to triple by 2020.
- One in every three low-income families faced a cash shortfall for at least one month during the two years covered by the analysis.
- Struggling families typically accrued a shortfall of over £2,000, with the shortfall lasting an average of nine months.
- The boroughs with the greatest proportion of low-income families facing a cash shortfall were Enfield, Brent and Camden.
- Overall, two thirds of low-income households face a drop in disposable income of more than £30 per week by 2020.
Tracking households over twenty-four months gives new insights into the drivers of financial resilience.
- Employment and higher earnings are the main paths toward improved financial resilience, closely followed by changes in benefit income (e.g. taking up benefits).
- The most common driver of experiencing a cash shortfall was a drop in benefit income, highlighting the importance of social security in supporting those on the lowest incomes.
- One in four households falling into deficit had a member who had lost their job or saw a fall in their earnings.
- Employment income was crucial for people’s financial wellbeing: 45% of working-age households on low-incomes studied were in employment.
- More than one in four of the nearly 230,000 households in work lost their job at least once. This highlights the need for job stability and higher pay as well as increasing employment rates.
Housing affordability emerges from the data as a clear driver in shaping living standards. There was an average 17-percentage point gap between the rent faced by low-income Londoners renting privately, and the Housing Benefit awarded. Totalled across all households, the gap is greatest in Haringey (£73m), Brent (£60m), Barnet (£57m) and Enfield (£54m). This indicates the areas where there is the greatest need for increases in the local housing allowance (targeted affordability funding), where the low-income cohort is struggling the most with high rents.
The transition to Universal Credit is expected to lead to 42% of households being worse off, with 36% of the total likely to be better off. Those most likely to have lower incomes are single parents and those working part time, while couples with children are among the likely beneficiaries. More than half of those in Islington and Croydon are expected to be worse off.
The number of households whose income does not cover their housing costs, a subset of those who face a cash shortfall, is projected to rise tenfold from 8,733 households in 2018 to 88,900 in 2020.
This research was supported by a grant from Trust for London. It has been extended for a further eighteen months and will track the impact of Universal Credit as it rolls out across the capital. Future analysis will include a public facing dashboard on the impacts of welfare reform, and analysis as requested by participating authorities.
The analysis is based on data used to pay out over £24bn in Housing Benefit payments each year. Ten of the participating local authorities are using the household-level data to target tailored support to households most in need, and to track the impact of their interventions.
“This research shows how wider use of administrative data can help ensure resources are targeted to those that need help the most. Councils can use their data to help with practical problems, making sure struggling families get the help they need as they move onto Universal Credit. We would like to see this type of systematic analysis adopted by government.”
Deven Ghelani, Director of Policy in Practice
“With welfare reform, rising living costs, job insecurity and the roll-out of Universal Credit, it is a time of real change for low income Londoners. The response from policymakers needs to be right if we are to prevent many thousands of people from being pushed into real financial hardship because of the changes.”
Bharat Mehta, Chief Executive of Trust for London
Policy in Practice used anonymised benefit data collected from 18 London boroughs to track over 550,000 low-income households over two years. They then modelled expected changes in income and expenditure in the years ahead.
Financial resilience compares households’ actual income to average spending by low-income households (the bottom 30%), according to household composition and location. The gap between income and expenditure is calculated for each household, identifying those families that had an expected cash shortfall. Households are then categorised into three groups:
- At risk / in crisis – facing a shortfall; household costs exceed income.
- Struggling – household take-home income is greater than expected costs by between £0 and £100 per month.
- Coping – household take-home income is greater than expected costs by more than £100 per month.
- The data shows the numbers of people affected and forecast to be so as below.
The project allows policymakers to ask a different set of questions:
- A datastore includes over 10 million records, to show the impact of reforms on large cohorts and individual households;
- A policy engine allows modelling of changes now and in the future, such as Universal Credit and self-employment;
- Tracking households over time permits analysis of causal relationships between interventions and outcomes;
- Boroughs can benchmark the impact geographically to understand drivers and pinpoint support to individual households;
- Layered over this is an analytics engine that allows councils to take a proactive and predictive approach to supporting families on low incomes, and track the effectiveness of their interventions.
To discuss this research in more detail or to join the next wave of analysis please contact Giovanni Tonutti, Senior Analyst, Policy in Practice at [email protected] or 0330 088 9242.