11 November 2020

Households using debt to pay for essentials as Covid-19 hits finances hard

6 min read

Steve Webb
Royal London



  • More than a quarter of people in the UK have suffered a drop in household income since the start of the pandemic in March (27%)
  • Nearly two-thirds of the self-employed have seen a decrease in income over the same period (63%)
  • Since March, a quarter of people have witnessed their household outgoings increase (25%)
  • A third (34%) believe their personal finances will worsen as a result of the pandemic, rising to more than half of the self-employed (54%)
  • Nearly a quarter (23%) of self-employed renters have increased their borrowing since the pandemic

New research by Royal London reveals a startling picture of people’s personal finances during the pandemic. As our figures above show, household incomes have fallen while bills have risen, with many people believing that things are going to become even bleaker.

Worryingly, we found that the self-employed have been more acutely affected by Covid-19 than the UK population as a whole. In addition, households with an annual income up to £40,000 are worse off than higher-rate taxpayers¹, and renters are significantly worse off than all homeowners, with self-employed renters suffering the most.

As the Government imposes a second lockdown and fears grow over soaring unemployment, our research found that there has been a shift towards using debt for essentials and day-to-day needs. But 30% of borrowers (and 41% of self-employed borrowers) said the amount they could repay each month had gone down since the virus hit.

Although credit cards can be an expensive way to borrow money, they are the most popular (63%), followed by mortgages (36%), overdrafts (25%), and unsecured loans (19%).

Our research was carried out six months into the pandemic from September 29 to October 2, 2020². Among our key findings was the contrast between homeowners and renters. With rents continuing to rise, tenants are worse off than homeowners, and self-employed renters are particularly badly affected³. For example, 35% of self-employed renters reported that their outgoings have increased compared to just 18% of self-employed homeowners.

Sarah Pennells, Head of Financial Capability at Royal London, says: “Our research reveals the devastating effect of Covid-19 on people’s finances. Those who are self-employed have been particularly hard hit, as have people on lower incomes. And with many self-employed still not covered for various government support schemes, more needs to be done to make sure they don’t fall through the net.

“While recent Government and regulatory announcements on new payment holidays for mortgages and consumer credit products are to be welcomed, it’s crucial that people get the help they need to understand what they’ll owe when the payment holiday ends, and are given support if they are still struggling financially.”

For people worried about debt, Turn2Us, a charity at the forefront of the fight against UK poverty and a Royal London social impact flagship partner, has the following guidance:

  • Maximise income: claim all the benefits you are entitled to; find out if you are eligible for any grants; are you working all the hours you are able to?; speak to your local council about specific support schemes (i.e. help with school uniforms)
  • Reduce expenditure: switch energy suppliers; cancel unnecessary contracts; prioritise your spending
  • Seek advice: if you need to, seek advice around Debt Relief Orders or bankruptcy

Jamie Grier, Director of Income & External Affairs at Turn2us, says: “This new research shows just how disproportionate the impact of coronavirus has been in recent months, including to those who are self-employed. Far too many self-employed people slipped through the Government support schemes and have had to rely on Universal Credit. The income from this benefit is far from enough to meet people’s basic needs, even with the Minimum Income Floor being suspended. We welcome the news that the Government is going to keep the Minimum Income Floor suspension, however we urge them to go further and retain the £20 standard uplift to Universal Credit, in order to give people a fighting chance to keep themselves afloat during these difficult and uncertain times.”

A further breakdown of the data, as well as infographics and graphs for key statistics, are available on request.

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For further information please contact:

Meera Khanna, Corporate PR Manager - Protection

Notes to Editors

  1. Since the pandemic, 29% of the UK population with household income up to £40,000 saw a decrease in income compared to 24% of those with household income over £40,000. During the same period, 66% of the self-employed with household income up to £40,000 saw a decrease in income compared to 57% of those with household income over £40,000.
  2. Opinium questioned 2,000 people who were nationally representative of the UK adult population (18+) and an additional 500 UK adults who were self-employed pre the coronavirus pandemic. The fieldwork was carried out from September 29 to October 2, 2020.
  3. Some 14% of the UK population have increased their borrowing since the pandemic, but this rises to 17% for UK renters. This rises again for self-employed renters who are almost twice as likely as self-employed homeowners to have increased their borrowing, with 23% of them increasing borrowing compared to just 12% of self-employed homeowners. We also found that homeowners are more likely to have seen their outgoings decrease than renters (30% compared to 21%).
  4. Universal Credit payments received by the self-employed are usually assessed by examining the individual’s actual earnings as opposed to their expected earnings, known as the minimum income floor. During the pandemic, the Government suspended the Minimum Income Floor.

About Royal London:

Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £139 billion, 8.6 million policies in force and 4,348 employees. Figures quoted are as at 30 June 2020.