Working 9 to 5 and still living on empty
Most people expect that if you work hard, you should have enough money to get by. Yet, our frontline advisers are seeing more and more people in work who can’t make ends meet. This is even after they’ve had specialist advice and done what they can to cut costs and maximise their income.
In July, we raised the alarm that our advice isn’t working the way it used to because millions are now Living on Empty, without enough coming in to pay for basics like housing, energy and food. More than half the people we help with debt advice are now in a negative budget — when you’re left out of pocket each month because your essential costs are higher than your income — up from 1 in 3 in 2019.
This amounts to a generational challenge. It’s crucial that the people making policy understand and act on this challenge. Getting millions of Britons from living on empty to having half a tank will define government for years to come. Data on negative budgets — the ultimate red line between making ends meet and continuously being pulled under — can help identify where interventions are needed the most and what change will make the biggest difference.
Here we focus on an especially concerning trend in our negative budgets data — the growing number of people we see who are working, but still can’t afford the day to day cost of living.
In work but still in the red
When we help people with debt advice, we look closely at their income and expenditure to help them set a sustainable budget to live on and, if possible, repay their debts. When they don’t have enough coming in to cover their essential costs, we call it a negative budget. We do this with tens of thousands of people every year. It’s clear from our data that being in work — especially full-time stable work — helps protect people from falling into a negative budget.
But this protection is waning. The number of people who are employed and have a negative budget has grown considerably since the first quarter of 2019/20. This is true whether you’re self-employed, working part-time or full-time.
Working full-time
For the people we see who are in full-time work, the negative budget rate has gone up by nearly 12% — from around 27% in the first quarter of 2019/20 to almost 39% in the first quarter of 2023/24. We’re seeing a growing number of people in full-time work, who previously had just enough to get by, being pulled into the red.
Things are still tough for people in a positive budget — those we help who work full-time have seen the average amount they have left at the end of the month (their ‘monthly surplus’) drop significantly since 2019 — from £85 to £64 so far in 2023. They’ve lost nearly a quarter of the money they could have been using to pay down their debts, or save for a rainy day.
For the people we help with debt advice, the average income from full-time work is not enough to cover average essential living costs. When peoples’ wages are lower than their costs, they see a gap in their budgets that needs to be filled by another type of income, like benefits, to keep from falling into a negative budget. Nearly half the people we see in full-time work rely on benefits to top up low pay.
People we see who work full time have seen their wages go up in the past few years, but their essential costs have gone up faster. At the start of 2019, the gap between average full-time wages and average essential costs was £148. At the start of 2023 this gap had widened to £259 — an increase of £111, or 75%. With food inflation still at nearly 14%, and the prices of many other essentials also rising, it’s likely this gap will keep growing unless income from wages keeps up.
Working part-time
As we might expect, the people we help with debt advice who work part-time are even worse off than those in full-time work. Almost half (46%) of people in part-time work are in a negative budget, up from 36% in 2019. When we look at how much money people have left at the end of the month after paying for their key living costs, we see that this group is, on average, £14 short.
People we see who work part-time are more likely to need benefits to top up their income — 81% are receiving benefits, compared to 49% of those in full-time work. Benefits make a positive difference to the monthly budgets of those in part-time work, but not enough to help people break even. Clients in part-time work who don’t receive benefits have a monthly budget shortfall of £23, while those who are receiving benefits have a shortfall of £11. As neither wages nor benefits have kept pace with the cost of essentials, many people in part-time work have been left struggling — some are teetering on the edge of a negative budget while others have deep into the red.
Henna works part-time on a zero-hours contract and is claiming Universal Credit to help top-up her low income. She is in a negative budget. She can’t afford basic things like food and heating, and goes days without. Henna has been assessed by a debt adviser and her financial statement shows that she is not overspending. Because her earnings aren’t enough to cover her essential needs, Henna’s debts have increased. Her mental health is suffering and she is becoming increasingly dependent on foodbanks.
Being self-employed
Compared to those in full or part-time work, the people we see who are self-employed are hit the hardest by negative budgets. So far this year, 58% of the self-employed people we’ve helped with debt have been in a negative budget. This is 19% higher than in 2019, when 39% were in the red. These numbers refer to self-employed people we have helped with personal debt issues, not business debts.
When it comes to how much money they have left after paying for essentials, our self-employed clients are currently no better off than those who are unemployed. In fact, among the people we see, self-employed people have been deeper in the red than the unemployed since 2020.
The self-employed have also experienced a steeper fall in their monthly surplus than any other occupational group we’ve helped with debt advice since 2019. In the first quarter of the 2019/20 financial year, the average self-employed person we help had £7 left at the end of the month. Now, they are on average £85 short — a drop of £92.
That our self-employed debt clients are so deeply affected is really concerning. Some of this can be explained by the fact that self-employed people are subject to different benefits rules — like the minimum income floor — which can significantly reduce the welfare support they receive. They are also not entitled to things employees get, like Statutory Sick Pay, meaning they have little short-term support available if they’re ill and can’t work.
Amy is self-employed. She was diagnosed with breast cancer earlier this year and is currently not able to work, as she is recovering from an operation. She is receiving universal credit and child benefit but, because she is self-employed and subject to the minimum income floor, she gets £400 less than she would if she weren’t self-employed. She lives in a private rental flat and almost all of her benefits payments go towards rent.
As a result, Amy and her teenage daughter have very little to live on. Amy cannot afford to pay for essentials like food and bills. She has hundreds of pounds in gas and electricity arrears and these will continue to grow until her situation changes. Citizens Advice has helped Amy submit a capability for work questionnaire, but it is going to take at least a few months until her capacity to work is assessed and she can receive more support through Universal Credit.
Disproportionate impacts
As is often the case, some groups are struggling more than others. Of those in full-time work, single parents are more likely to be in a negative budget (46%) than single people without children (37%), couples with children (37%) and couples without children (31%). They’re also the only group who are in the red each month on average, even when working full-time. At the end of the month, the single parents we help with debt advice in full-time work are, on average, £6 in the red. They used to be much better off, with an average monthly surplus of £44 at the start of the 2019/20 financial year.
Some of this pressure comes down to gendered differences in pay. From our data we see that of those in work, women have lower income from wages and are more likely to be in a negative budget than men — and we know that 84% of single parents are women. In addition, childcare is one of the essential costs rising faster than incomes. Generally, households with just one earner are worse off because they have to navigate rising costs on a single income.
Why are people in work struggling so much?
Being in work, and the type of work you’re in, clearly has an impact on whether you can make ends meet month to month. But what we can see from our data is that things are getting worse across the board. Everyone is more exposed to negative budgets, even people in full time work. So this tells us that while negative budgets are about incomes, and how much you get from work and benefits, they’re also about costs. Which have been skyrocketing.
All essential costs have gone up, with some costs — like energy — having climbed more than others. This impacts everyone, no matter what type of work you do.
Private rents are eating up people’s pay
Rent is an especially high cost, eating up, on average, 34% of our debt clients’ monthly incomes. The situation is much worse for those renting in the private sector — more than 40% of their income is spent on housing. By comparison, those we help who live in social housing spend ‘only’ 31% of their income on rent.
Our data shows that the high cost of housing is a key factor driving the people we see into negative budgets. As rents go up, so does the number of people we see in a negative budget. Even though private renters earn more than social renters, they are overall worse off because their rents are unsustainably high — something social housing protects against. But, our debt clients in social housing are much more vulnerable — if their housing costs were to go up in real terms by as much as private rents have, their negative budget rate would rocket to 66%.
So, while there’s clearly an income issue to address, we also need to look at other things that protect people from negative budgets — like social housing.
Work should pay, but key costs also need to come down
So often we’re told that people need to work hard to get by. That those who are struggling need a hand up through work, not a handout. But what’s clear for the people we see is that being in work is no guarantee of getting by. Even when they’re ‘doing the right thing’ — going to work, putting in the hours they can — they’re still struggling.
So what do we do about this? Millions of people working hard but still living on empty isn’t sustainable. But it’s a huge challenge to solve. Over the last few months we’ve been talking to policy makers, analysts, politicians and third sector organisations about how to tackle negative budgets. We don’t have all the answers here, we want to work with others to build them.
There are lots of credible solutions out there. Looking just at incomes and wages, some of the levers are pretty obvious. There’s mechanisms like the National Living Wage, which could be raised to bring it closer in line with the actual cost of living. There’s also a lively debate about growth and productivity, and the role those play in driving up wages and living standards. There are changes that could be made to the benefits system — both in terms of levels and how it interacts with work — to give people extra support. Some of these could be done relatively quickly, others will need more time, thinking, and resources. In the very short-term, uprating benefits in line with inflation feels like the bare minimum to stop more people falling behind.
If we look at housing, which as we’ve seen is a huge driver of negative budgets, it’s a similar picture. There are levers that could be pulled now to alleviate the pressure on people. Unfreezing Local Housing Allowance, which has dropped far below the reality of rental costs in the last few years, is a clear starting point. But there are much bigger fish to fry in housing policy — not least the overall supply of homes which drives so many of the problems we see.
We’re not pushing a specific list of solutions here. Ultimately living on empty isn’t a problem just we at Citizens Advice can solve. But we’ll continue analysing our data and having conversations about what could make the biggest difference. We’d love to hear from you if you have thoughts on this.
We’re also taking a step back to look at the big picture. Up to now, we’ve focused on income and expenditure data for the people we help with debt advice. It gives us a pretty unique window into people’s problems, but is naturally a snapshot of the people we help. It doesn’t show us how broad this problem is, if the same story is true for the wider population. So we’re developing a model that will help us do this — to see how negative budgets impact people on a national scale. We’re working closely with experts to think innovatively about how we can use our data, and other data sources out there, to get the big picture on negative budgets. Watch this space.
Acknowledgements and methods
This report was written by Tess Thompson, Meri Åhlberg, Dr Thomas Hunter, Jonny Tatam-Hall, and Emer Sheehy, with additional support from Eva Souchet.
1. Analysis of our budget planner data
Debt clients are people who come to Citizens Advice for help managing their debts. Our advisers carry out a budget assessment with the client to help them make a sustainable repayment plan for their debts. This assessment includes recording income and expenditure information. Since 2019, over 260,000 clients in England and Wales have completed this process with us and as a result we have a very rich, in-depth source of living costs data among the lower income deciles. Whether or not an individual is in a negative budget is determined using the formula Surplus = Total Income — Total Essential Expenditure. If the individual has a monthly surplus of less than zero they are classified as being in a negative budget.
2. Negative budget rate versus monthly surplus rate
In this output we use two key ways to understand the financial situation of the people we help with debt advice.The first is the negative budget rate, which tells us the proportion of people we see whose essential costs are higher than their incomes, leading to a monthly deficit. The second is the monthly surplus rate, which tells us the average amount people have left in their pockets at the end of the month after paying for essential costs. The negative budget rate helps us understand how many people are affected, but from the monthly surplus we can see how badly a group is, on average, affected.
