Did the Autumn Statement get the ‘Jams’ out of a pickle?
By Henry Hall, Insight and Planning Officer
It was touted as the Autumn Statement to improve the living standards for those who are ‘just about managing’. With the cost of living rising and growing economic uncertainty, this was an opportunity to give a helping hand to people on the edge of falling into debt.
So what does the chancellor think he’s done for these groups?
The autumn statement confirmed:
· a rise in income tax threshold
· national living wage increases
· no further welfare cuts during this parliament
The problem is that this takes out more than it puts in, given the welfare cuts already planned, the outlook for inflation and growth post-Brexit; this means less bread and butter for the ‘Jams’.
And the families ‘just about managing’ (or ‘Jams’) are a familiar demographic for us. Our clients have an average net income of £16,650, and an average of just £58 left at the end of the month once essential payments have been taken care of [Statistics Mid-Yearbook 2016, StepChange Debt Charity, 2016].
We’re also familiar with those who are ‘not quite managing’. 29% of our clients are in a deficit budget at the end of the month, and 40% are in arrears with their essential household bills.
Living wage and tax threshold increases won’t make enough of a difference
The previously announced living wage increase to £7.50 per hour will be of great benefit for those in work, but will help just 6.7% of our clients. Along with the income tax threshold increase to £11,000 these changes will not go far enough to make a real material change to people who are struggling with problem debt.
We’ve calculated that the higher cost of living, even when average wage growth is taken into account, will cost our clients £16 per month by this time next year. This figure grows to £23 for clients with benefit income, which has been frozen since April 2016.
Impact of wage growth and inflation on StepChange clients
We’re disappointed that the government hasn’t re-assessed the four year benefits freeze in light of recent economic changes; when the policy was set in motion inflation was fluttering just above 0%. In a year’s time the Bank of England is expecting CPI inflation of 2.7%.
A pause in the freeze for a year would have provided some immediate relief from the worst effects of the rising inflation, and would still have allowed the chancellor to make the £3.5bn of savings desired by 2020–2021 [Under New Management. Resolution Foundation, 2016].
The government has also missed the opportunity to provide some respite to those set to lose out from the two child limit for tax credits next April. Those impacted by this change will lose a crippling £300 a month. About 17% of our clients with more than two children already can’t make ends meet. We estimate that after this change, this will shoot up to 90%.
But some good news for people in financial difficulty
While the overall picture is clearly one of missed opportunities for the chancellor to help people in financial difficulties, there is one measure announced that will genuinely help people in debt.
The government will ban letting agent fees ‘as soon as possible’ to help those in private rental housing. We know that renters bear higher costs than homeowners, and the proportion of our clients who are renting has skyrocketed since 2011, reaching 77% of all clients advised in the first half of this year [Statistics Mid-Yearbook 2016, StepChange Debt Charity, 2016]. 37% of clients are now in private rented accommodation, and would benefit from this change.
Housing tenure for StepChange clients
Citizen’s Advice say that letting agent fees average £337, and Shelter have found that 1 in 7 pay more than £500. Moving house represents a period of financial uncertainty for many and particularly severe pressure for renters. This intervention from the government will give people close to the edge that little bit more of a buffer against financial shocks.
Safety nets are needed to support people before they fall into problem debt
The erosion of key safety nets such as the welfare system has a real impact on people’s vulnerability to debt. We know that income shocks caused by lost or reduced employment, illness or family breakups are the most common reasons for people falling into debt.
We need an effective set of measures to reduce the likelihood of people falling in problem debt, and reduce the harm it causes if people do. The freeze on working age benefits, changes to the work allowance in Universal Credit, and the two child limit to tax credits will put huge holes in this safety net.
We welcome action from the government to help low income families save for a rainy day through the Help to Save scheme. This support should continue by introducing a Breathing Space protection to help families control their credit commitments and stop their finances spiralling out of control.
We also need to consider how to help people plug the gap between their income and essential costs after they’ve faced a shock to their income, so that they don’t have to turn to credit and put themselves at further risk. People at risk of problem debt need affordable credit options to cope with life’s ups and downs without relying on high cost credit.