Managing household bills on a low and falling income
Commissioned by: Citizens Advice
This research explores how households manage bill payments, the overlap between bill arrears and benefit entitlement and what this means for the impact of welfare reforms. It shows that there are strong links between low income, benefit recipiency, and arrears with household bills. Further welfare reforms will increase the budgetary pressures that low income families face. It is in the interest of creditors to be aware of these changes and to help customers manage their altered financial situation.
- Essential bills (rent, mortgage interest, water, energy, phones/internet and council tax) account for a quarter of spending for the average family – for the poorest fifth it is more than half of their weekly spending.
- In total 2.9 million working-age families were behind with a bill payment in the past 12 months, including 1.2 million who fell behind with multiple bills.
- 1.4 million working-age families were behind with an energy and/or phone bill, about 6%. But arrears were more common among certain family types including families where no adult is working, single parents and those renting from a social landlord.
- Over half of working-age families behind with their energy and/or phone payments are in the bottom fifth of the income distribution.
- Only 6% of people not receiving a means-tested benefit were in arrears with their bills, compared to a third of those on an out-of-work benefit and a quarter of those receiving tax credits.
- Though private renters face higher housing costs, receive housing benefit income directly and often have to top-up this benefit to pay rent, only 7% had fallen behind on their rent. However, 34% had fallen behind on essential household bills other than rent.
- 70% of working-age families that had fallen behind with an essential bill in the past 12 months were in receipt of a key benefit. A third were in receipt of an out-of-work benefit – the baseline benefit income.
- In the year that the under-occupation penalty was introduced and council tax benefit was changed, the number of working-age families behind with an energy/phone bill was the same as now at 1.4 million; but the number of families behind with an energy/phone and also rent or council tax has increased from 410,000 to 510,000.
- Some welfare reforms result in a sudden and absolute cut in a household’s income, such as the overall benefit cap and the under-occupation penalty. Others have a smaller or more gradual impact such as below inflation uprating.
- The overall benefit cap, which largely affects lone parents, and the transition to personal independence payments, which affects people with a disability, are arguably more likely than other reforms to result in debt problems. These reforms deliver a sharp and instant fall in benefit income to groups that are already more likely to be behind with bills.
About this report
This report was funded by Citizens Advice and written by Hannah Aldridge of the New Policy Institute. Views expressed in this report are those of the author, not necessarily those of Citizens Advice.