Policy in Practice, supported by Trust for London, has worked with 17 London boroughs to track the living standards of over 750,000 low-income Londoners using administrative data on Housing Benefit and council tax support during the period 2016 to 2020.
Their work finds that between 2016 and 2019, working-age low-income Londoners became increasingly financially vulnerable. There are strong links between households affected by welfare reforms and households who became more financially vulnerable, with groups who were impacted by several reforms, such as families with children, lone parents out of work, and private renters, becoming increasingly likely to face a cash shortfall after costs.
This decline in living standards meant low-income Londoners were ill-prepared for the financial impact of COVID-19. However, April 2020’s welfare reforms - most significantly increases to Universal Credit, tax credits and the LHA rate in response to COVID-19 - offered a boost to most working-age low-income Londoners. As a result, the proportion of low-income households who were financially vulnerable declined significantly - even if some groups did not benefit as much as others, and there are other groups new to benefits who can only be fully understood with more recent data.
- Londoners are poorer. Almost a quarter of working-age low-income London households (24.4% of those tracked) were facing a cash shortfall in 2019, up from 15.7% in 2016.
- Welfare reforms made people poorer. 39% of working-age households who were affected by at least one of five main welfare reforms were financially vulnerable, compared to just 17% among those not impacted by any of these reforms.
- Universal Credit and the LHA rate had a negative impact before the pandemic. Close to half (44%) of households on Universal Credit could no longer make ends meet by August 2019, while two-fifths (40%) of households impacted by the Local Housing Allowance were in cash shortfall.
- More families with children are poorer. Almost two-thirds (61%) of families with children were worse-off after household costs by 2019 than they were in 2016. As a result, the proportion of families with children facing a cash shortfall had doubled from 11% to 23%. It is estimated that across London this could equate to 229,000 children living in households that could not make ends meet.
- The COVID-19 welfare support helped some. As a result of April 2020’s welfare reforms, the average working-age low-income London household’s disposable income has been boosted by £85. This has meant an extra 6% of London’s pre-existing working-age low-income households can make ends meet.
- The new LHA increase has helped some private renters. 20% of private tenants who previously saw restrictions in housing support will no longer have their housing-related benefits restricted as a result of the increases to the Local Housing Allowance introduced in April 2020. Among those who are still impacted, their disposable income will increase by £172, moving them on average from a significant cash shortfall (-£140) to a small surplus of £33.
- The benefit cap stopped some households from getting COVID-19 welfare support. However, the benefit cap is still preventing some financially vulnerable Londoners from fully benefiting from the April reforms. Those who were already capped received no additional support and have an average cash shortfall of over £400, while those who are newly capped received some boost in income but remain with an average cash shortfall of £284.