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In 2022, the Collins Dictionary declared ‘Permacrisis’ to be the word of the year. This catch-all term for what is apparently – an extended period of global instability and insecurity – will continue to affect most of us in one way or another, for months and years to come, but recent reports have found that in the UK, it is the North West that is the region worst affected by permacrisis and another phrase now shared on a daily basis: The Cost of Living Crisis.
Households in the UK are in a worse financial position as a result of the cost of living crisis than they were during the pandemic, according to Plend’s latest Financial Inclusion Report. Plend are a financial organisation that claim to be committed to creating a more 'financially inclusive UK'.
The ‘Financial Inclusion Report: the impact of a cost ofliving credit crunch’ – focuses on the impact of the cost of living crisis, personal and household finances, and the resultant impacts on access to financial services in the UK. The findings emphasise how badly some groups – such as young people and ethnic minorities – have been affected more by the crisis than by the pandemic, thereby contributing to the increase in financial exclusion of those looking for support.
Nationally the statistics are alarming: 3-in-4 (73%) of adults in the UK are in a worse financial position this year, in comparison to over a quarter (28%) last year.
72% of people are struggling to pay off loans and credit commitments, up from 50% last year.
One third (34%) of UK adults have borrowed money due to the cost-of-living crisis, in comparison to only a fifth (18%) due to the pandemic.
Nearly 6-in-10 people from Black and minority ethnic backgrounds (58%) have borrowed money in comparison to 3-in-10 white people(30%).
Ethnicity and poverty factors
The report highlights notable ethnic disparities, with over half (58%) of people from Black and minority ethnic communities borrowing money because of the financial impacts of the cost of living crisis - nearly double the proportion of white people doing the same (30%).
Regional disparities
The cost of living crisis has had a differential impact on regions within the UK. People in the North West have been most heavily affected, with more than 3-in-4 people (78%) saying they are in a worse financial position now than at the start of the crisis, followed closely by those in Wales (76%).
This financial vulnerability is in turn affecting people’s well-being, with over half of Londoners (58%) saying their mental or physical health has been impacted.
Lack of access to credit is high, with Scotland having the highest loan rejection rates of 2-in-3 people (66%), while a quarter of Londoners (25%) have found it difficult to access financial products.
Young adults and parents
Young people have been disproportionately affected by the cost of living crisis, as more than half of 18-34-year-olds (54%), the most of any age group, have borrowed money to ease financial pressures, in comparison to just over a third (35%) who borrowed money to offset the impact of the pandemic last year. The crisis has also had a detrimental impact on their well-being, with 2-in-3 (67%) claiming that it has affected their mental or physical health, compared to less than 3-in-10 people (29%) aged over 55.
It has additionally been found that 56% of the UK’s parents are borrowing money, in comparison to less than a third (32%) of adults without children.
Residents across Greater Manchester, Merseyside and Lancashire are currently experiencing pressure and crisis due to a combination of factors that are causing widespread hardship. Covid-19 caused upheaval and as we emerge from the pandemic it has been replaced by a set of serious economic challenges, leaving those on the lowest incomes in precarious positions.
In the North West of England, rents had increased by 4.3% as of September 2022. However Local Authority Housing rates (LHA rates) have been frozen since 2020 and it is not clear that they will be raised in 2023. The LHA rate is the amount of money that someone is able to get to help towards their housing costs. It is based on the 30th percentile of market rent in any given area. As rents are rising, fewer properties are available for people to rent affordably, and this results in a gap between the LHA rate (the Housing Element of Universal Credit or Housing Benefit) and the actual cost of rent.
“Families who were getting by and doing alright, aren’t alright now. They might have afforded a curry before, or a night out, but now they can’t afford to do anything except the basics, they’re going into debt and life is no fun because they can’t afford to do anything. That’s really hard for people to cope with. Social isolation is a massive problem, because you can’t go anywhere for free, so people have got no stimulation, no ability to form connections with friends. They get isolated and less confident” Adviser, Hardship Fund.
Research from Citizens Advice North Lancashire showed earlier this year that Universal Credit is not enough to live off in Lancashire to afford the basics and avoid destitution. In the face of rising inflation, if benefits are not increased in 2023, the effect on those on the lowest incomes will be serious hardship. Around 13,500 people in Lancaster District alone are in receipt of Universal Credit. 41% of them are in work.
“I’ve heard about families sharing beds to keep warm, families moving in with each other, people using Klarna [a credit product] to buy food – that’s causing havoc. Debt is a constant cycle and people can’t get out of it, so they have to rely on the foodbank and fuel vouchers” Adviser, Hardship Fund.
“You’re screwed! People are putting rents up astronomical amounts. You can’t get 3 bedrooms in Lancashire for under £1,000 per month – there’s just nothing. But the LHA rate is only £650 for 3 bedrooms so I don’t know what we are supposed to do.” Client.
“All it takes is one mini crisis to set people back – school shoes – so we can’t eat this week. We needed £40 for something, and then there’s no money for the shopping.” Adviser, Hardship Fund.
“I talked to one lad who had just come out of prison. He said that being inside was better than being out because at least inside you got food and heating.” Adviser, Hardship Fund.
(Data and anecdotal evidence from Citizens Advice North Lancashire Briefing Paper November 2022. Author Joanna Young, Head of Research and Campaigns.)
Ethical and affordable lending
The cost of living crisis has also highlighted issues in the access to fair and affordable credit to Britons, as the number of people who feel they are being locked out of the financial system is increasing year-on-year - up from 1-in-5 (20%) of those surveyed last year, to more than1-in-4 (28%) this year.
The Financial Inclusion Report suggests that those who do have access to credit are finding it difficult to pay off debt or balances, with nearly 3-in-4 (72%) people having struggled at some point to pay off their loans, up from 1-in-2 (50%) in last year's report, suggesting that financial stability among British consumers is worsening.
More than 1-in-5 (22%) people feel that they would not be able to access a credit card or loan if they needed money. As a result, 29% of those who were rejected for a loan or line of credit borrowed money from friends or family, and 10% from unregulated lenders.
This year’s report also finds that there is a lack of trust between the public and financial institutions, with only 1-in-5 (21%) credit-holding adults believing that loan and credit card companies are charging fair rates. Nearly 2-in-5 respondents (39%) agreed that if they could access a genuinely low-interest loan, their financial situation would improve; up from 27% last year.
And in Greater Manchester The impacts of the cost of living crisis continue to raise challenges and reach far beyond ‘disadvantaged’ parts of the population: 8 in 10 (80%) Greater Manchester respondents say their cost of living has increased over the past month, whilst 7 in 10 (71%) are worried about the rising cost of living.
A quarter (24%) of Greater Manchester residents are seeking information or support for the first time, reinforcing how the cost of living crisis is bringing financial concerns to those not traditionally experiencing them. (Greater Manchester Combined Authority Residents Survey January 2023.)
There are also a number of examples within the Plend report that highlight how the cost of living crisis has exacerbated the ‘poverty premium’, the extra costs put on those on low incomes who have to pay for essential products and services. Ethnic minority groups are less likely to be accepted for loans, with over half of those who applied (54%) rejected in the last 24 months, and those who were accepted faced higher-than-average APR rates. This is in comparison to 38% of white people who were rejected from loans in the last 24 months.
Cutting back on sustainable living
With the end of government-led strategies and initiatives to incentivise green home improvements, the current financial climate is affecting how households in the UK are dealing with the climate crisis. This includes purchasing decisions and the ability to make environmentally sustainable choices as people are delaying home improvements. More than half the population(57%) can no longer afford sustainable products or make environmentally friendly choices.
Additionally, 4-in-5 (80%) homeowners or mortgage payers have delayed upgrading their homes to be more energy efficient, indicating the detrimental effects that the cost of living crisis is having on the decarbonisation of the residential sector.
And Liverpool Combined Authority commissioned a report in December 2022 that details an 11-point plan to tackle food poverty. While more recent figures from the Trussell Trust, which represents around half of the city region’s foodbanks, reveal that between April and September last year 41,821 three-day food parcels were distributed – helping 15,308 children. The figure was the Trust’s highest ever and was almost 38% higher than the same period in 2021.
Cllr Janette Williamson, Portfolio Holder for Inclusive Economy and Third Sector, said: “Having access to affordable, healthy food is a fundamental right – yet in these challenging economic times thousands of Liverpool city region households are struggling just to put food on the table."
Robert Pasco, CEO and Co-founder Plend, comments: “These findings highlight the mass inequality gaps in our society, exacerbated by the pandemic and the current cost of living crisis. Those who are already struggling to make ends meet are hit the hardest, with many being forced to turn to high-cost credit to meet their basic needs. This only perpetuates a cycle of debt and financial exclusion, trapping people in a vicious cycle they can't escape from, contributing to the ‘Great Credit Divide’.
“We must work together to prioritise financial inclusion and create a society where everyone has access to affordable credit, financial stability, and the opportunity to build a better future for themselves and their families."
Richard Lane, Director of External Affairs at StepChange comments: “Plend’s report brings to light how the cost of living crisis has escalated ongoing issues around problem debt and financial exclusion. Struggling borrowers need the government, regulators and creditors to step up to ensure the mechanisms are in place both to catch people before they fall into long-term problem debt and to help people already facing severe financial difficulty. StepChange has supported millions of people seeking support with problem debt and continues to do so, ensuring that those who need help can access it.”
Co-founded in 2020 by Robert Pasco (CEO) and James Pursaill (CTO), Plend offers longer-term, sustainable loans at fair interest rates for borrowers that are missing out due to traditional credit scoring. Rather than the traditional system of using credit scores based on demographic data to set interest rates, Plend uses open banking to build a fairer picture of individual financial positions, known as the Plend score. Plend created the annual Financial Inclusion Report to help highlight the UK’s financial exclusion crisis and those most at risk in society.
This is Plend’s second annual Financial Inclusion Report, following last year’s which focused on the impact of the coronavirus pandemic on household and personal finances. The research was conducted by Opinium Research, with a representative sample size of over 4,500 UK adults, and Plend’s own customer data. The report also includes contributing comments from debt charity StepChange, the Green Finance Institute, Nationwide, the University of Bristol and Fair4All as well as additional reference points from the Centre for Social Justice, Fair By Design, ONS, PFRC, The FCA, The Money Charity, and World Bank.
Alice Tapper is the author of Plend’s Financial Inclusion Report. Alice is a financial educator and campaigner. She sits on the steering group of the Living Wage Foundation and is Head of Impact at Plend.
Click Here to download the 2023 Financial Inclusion Report.
Header Image: Tom O'Neill