Red Alert: The Unequal Toll of Negative Budgets
In February, we launched The National Red Index, our new research looking at the state of living standards in Britain. The picture it reveals is staggering. Nearly 5 million people are in a negative budget — where their income isn’t enough to cover essential costs, leaving them in the red each month. And the problem is deepening: the average monthly deficit for negative budget households has gone from -£270 in 2019/20 to -£365 in 2023/24.
In this blog we look at 2 further groups — single parents and disabled people. Overall in 2023/24, 288,000 single parents and 380,000 disabled people were in a negative budget. That’s 1 in 5 of all single parents in England, Scotland and Wales, and nearly 1 in 10 disabled people, who can’t afford their key living costs without borrowing or going into debt.
How negative budgets affect single parents
Marta* is a single parent to 3 children and is pregnant with her 4th child. Her income is barely enough to cover her and her family’s essentials, leaving them on the brink of a negative budget. Marta lives in a council property and receives Universal Credit (UC) and Child Benefit. She is subject to the benefit cap, so has £169 taken off her UC claim each month.
Marta has built up around £5,500 in arrears despite having cut back her spending. She doesn’t spend money on socialising, new clothes, pocket money for her kids, or gifts. Essential household costs like rent, energy bills and groceries take up all of her income, leaving her with only £27 at the end of the month. She often has to prioritise feeding her children rather than herself — a choice no one should have to make.
Marta isn’t alone. We know that 2.3 million people are living on empty — only escaping a negative budget by cutting their essential spending back to unsafe levels.
Marta currently receives the child element of UC for all 3 of her existing children because they were born before 6 April 2017 — before the two-child limit was introduced. However, she will soon lose the UC child element payment for her eldest, who is turning 18, and it won’t be replaced for her newborn because of the two-child limit. As a result, Marta will be pushed into a negative budget of -£282.
Marta is planning to go back to work 1 week after giving birth, but she’s worried about childcare costs. The cost of childcare has been shown to limit parent’s — particularly women’s — work options, pushing them out of the workforce or into low-paid, part-time work. The negative budget rates for single parent households in work are much higher compared to the average for working households.
The impact of negative budgets on disabled people
Theo is a single adult living with a long-term health condition. His condition made working difficult, so he had to take sick leave and eventually stop working completely. This left him struggling to cover his living costs, including rent. Once he could no longer pay, his landlord served him an eviction notice, but let Theo stay in the property while he waited to move into social housing. While waiting for his new accommodation, Theo accumulated nearly £1,800 in rent arrears.
Disabled people like Theo often have lower incomes and have to spend more on essentials like energy and food, making them more vulnerable to price rises. When we first saw Theo, he was spending 72% of his income on energy and rent, with energy eating up 21% of his budget and rent 51%. In comparison, the average household spends about 17% of their income on energy and 21% on housing. He also faced high costs for car insurance and petrol — he couldn’t cut these costs because he’s in a wheelchair and needed his car to get around.
Fortunately for Theo, things have turned around. He eventually managed to secure social housing and, around the same time, the Personal Independence Payment (PIP) benefit. His rent is now fully covered by UC Housing Allowance. Theo can now use part of his income for adult care costs, personal costs and to get new fittings for his home. He’s even traded in his car for an electric scooter to get around. As a result, Theo’s monthly income has gone from a shortfall of -£383 to a surplus of £13 — he’s out of the red, and now has a small surplus to cover other costs or build up a buffer.
Theo’s story is a positive example of how social housing and access to PIP can serve as a lifeline. But not everyone is so lucky. There’s a chronic shortage of social housing, and there are severe delays in accessing PIP.
What can the government do to improve living standards for vulnerable people?
Marta’s income would be much higher if benefits had kept pace with inflation. By 2023/24, if benefits had been uprated by the Household Cost Indices inflation rate from 2015, then a UC payment for a single-parent family with 2 dependent children would be £77 higher per month, and £919 higher per year. Theo would also benefit from higher benefit levels, as well as from improved energy bill support.
Our report highlights 5 recommendations — which could be started on within the first 100 days of a new government — that could help start turning the tide on negative budgets:
- Uprating working-age benefits using inflation data from the Household Costs Indices, so they better reflect the true cost of living for low-income households
- Continuing to increase the National Minimum Wage
- Improving energy bill support
- Ensuring affordable access to essential markets through social tariffs
- Reforming Local Housing Allowance so it better supports people with high private rent costs
More broadly, things like addressing PIP delays and the shortage of available social housing — enabling more low-income private renters to access social housing — are vital.
