Living on Empty: a policy report from Citizens Advice
Millions of people are living on empty. And our advice just can’t help them the way it used to.
If you fall on hard times, and you’re trying everything to get by, our advice should be enough to get you back on your feet. For most of our 80 year history, it has been.
It wasn’t so long ago that we only saw people in the very worst of crises in a negative budget — spending more on essentials than they have coming in. Now it’s people in full-time work. It’s nurses. It’s homeowners. It’s care workers. People with a steady, normal income who just can’t make ends meet. And many more are on the brink, one unexpected cost away from their finances spiralling.
It doesn’t have to be this way.
Every negative budget is a policy failure: our advisers do everything they can, but an increasing number just can’t get back into the black. The government can fix these failures. Then we’re here to help with the rest.
Parts of this report will feel familiar.
You’ll see charts of rising energy bills dragging more and more people under. You’ll see benefit deductions wiping out people’s finances and trapping them in a spiral of debt. As we hit publish, we’re just starting to see the shock of high interest rates push more people to the brink.
These all add up to a generational challenge. Getting millions of Britons from living on empty to having half a tank will define government for years to come.
But our new approach helps us understand and act on this challenge:
- A more accurate measure of what people need. Every data point in here starts with a real person, in trouble, making hard decisions. Our debt advisers want people to cut back so they can pay back their debts. But not so much that they can’t sustain their new budget. It has a Goldilocks quality: not too much, not too little. A unique insight into what people truly need to get by
- A real-time window into people’s problems. Negative budgets show how much pressure rising costs or falling incomes are causing far faster than any other measure. Others see part of the picture — their incomes, their spending, their debts. But this is the best way to see the whole story, at scale
- A new way to identify and prioritise policy interventions, big and small. Negative budgets are like a stress test of the system — they show up most where things go wrong. And because they’re linked to individuals, we can trace how policy failures compound one another, driving outcomes that no-one intended
These problems won’t be fixed overnight. This report suggests two changes that would help in the here and now. Currently, the average person we help is in the red. Targeted support for energy costs and fixing benefit deductions would get those who benefit— on average — back into the black.
All at a fraction of the cost of the untargeted crisis support we’ve been forced into in recent years.
But that obviously won’t be enough to get people thriving. Government needs to think about change at a policy and a system level to tackle these challenges. It will take years. But negative budgets is a new measure that helps us see a path to a position where we can focus on what we do best: advice that always succeeds in getting people back on their feet.
The rest of this report
This isn’t a typical policy report. While we make some specific recommendations, we don’t pretend to have all the answers. Instead, we set out a new approach to understanding — and tackling — the UK’s living standards crisis using real-time income, expenditure and debt data from frontline debt advisors across the UK.
This is one of the largest datasets of its kind and it can be used to quickly gain insights into which groups are struggling the most and where policy failures are happening. We can use it to evaluate policies — both prospectively and retrospectively — by showing their impacts on the households that are struggling, and therefore need help, the most.
We want to give the reader the power to interact with this data directly — all the graphs and videos in this report are also separately saved here and you can choose your own demographic breakdowns to explore trends. In the autumn, we will be extending our model from Citizens Advice clients to the country at large. Watch this space.
The report is structured as follows:
1. Where are we now? — Setting out how many people are in a negative budget.
2. A new perspective on a persistent problem — Explaining what our data is and what it can do.
3. What’s driving people into negative budgets? — Analysing why so many are in the red that goes beyond the cost of living crisis.
4. What does it mean to be living on empty? — Showing the individual and social costs of negative budgets.
5. Fixing the problem — Exploring what solutions would help bring people back into the black.
6. Thriving, not just surviving — Establishing where we want this work to take us.
7. Acknowledgements and methods
Where are we now?
It’s getting harder and harder for our advisers to make the sums add up for people. We’re seeing a spiralling number of people struggling with a negative budget, where even after our advisers do everything they can, their income just doesn’t cover the basics like housing, energy and food. This isn’t something that clever budgeting can overcome — it’s a sign of a much bigger problem.
We’ve always helped people in debt with negative budgets, but now over half the people we see are in the red — up from just over a third in 2019.
We’ve seen the warning signs for years, but we’re now at a tipping point. The annual income the people we help with debt advice need to avoid a negative budget has more than doubled since 2019 from around £7,000 to more than £15,000. As the cost of essentials continues to rise faster than incomes, we’ll see even more people who just can’t make ends meet.
This isn’t just a problem for the people we see through our service. Our nationally representative polling backs this up — the number of people across the country whose monthly income isn’t enough to pay for their essentials has more than doubled in the last 2 years, from 1 in 20 to 1 in 10 UK households.
And it’s not just a problem caused by events in the last few years. The recent squeeze on household finances has exposed just how many people were at a financial cliff-edge, unable to withstand any sort of financial shock. Many have already gone over but the underlying causes go much further back. Understanding this will help us think about how to solve negative budgets for good.
A new perspective on a persistent problem
Why does looking at negative budgets matter? A negative budget is the ultimate red line between making ends meet and continually being pulled under. It’s not an estimate of what an average person might need. It’s based on people’s actual lives and the decisions they make to try and get by.
Our data on negative budgets comes from our expert advisers who use a detailed budgeting tool to assess income, expenditure and debt levels for tens of thousands of people every year. We’ve done this for 260,000 people since January 2019.
We try to help people come up with sustainable ways to get out of problem debt, but for more than half the people we now see, advisers just can’t make the sums add up. Someone in a negative budget simply has nothing left to cut back on. Before the cost of living crisis, the average debt client had £33 left after paying for essential costs each month — now they have an average shortfall of £36 per month.
If any government wants to claim success in addressing living standards, it needs to move the dial on negative budgets. Because negative budgets data gives us detailed, real-time insight into people’s finances, we can understand how policy changes might impact them.
We can identify the big issues that drive negative budgets, and we can work out how many people would be lifted out of a negative budget by a specific policy intervention. We’ve already used our data to model how social tariffs in essential markets like water, mobile, broadband, and insurance could help people out of negative budgets. The same can be done for other policy interventions — the charts below show what negative budgets rates would look like for our debt clients on Universal Credit if the £20 per week temporary uplift to Universal Credit — introduced during the Covid-19 pandemic — hadn’t been axed.
But our insights go beyond the numbers. Behind each data point is a real person, and our advisers have spoken to every single one of them. We know their stories — how they ended up in a negative budget and what needs to be done to help them. You can see Nicole’s story in the video below.
What’s driving people into negative budgets?
To move the dial on negative budgets, we need to know what’s pushing so many people into the red. An obvious place to start is the current crisis. In the last few years, expenditure has surged and incomes have not kept up.
Across all four income quartiles of the people we help with debt advice, the cost of essentials has risen faster than incomes. This is especially true of our lowest income debt clients, for whom costs are now far above incomes. But, it’s also true for our highest income debt clients — the gap between their incomes and costs is narrowing fast.
Spiralling energy bills are a huge part of this, although other bills have been going up as well.
These costs have hit poorer households the hardest, because they spend more of their budget on things that have seen some of the biggest price hikes, like gas and electricity. For the people we help with debt advice, the average amount they spend on gas and electricity has gone up by 73% since 2019 — from £112 per month to £194. They now spend the equivalent of 13% of their income on energy, exceeding the typical measure for fuel poverty by 3%. In comparison, the poorest 10% of households nationally spend 11% of their income on energy, while this figure is only 4% for the richest 10% of households.
Structural inequalities also play out in our data. People of Colour, single parents and disabled people, have a bigger shortfall each month than other groups.
But it’s not as simple as people struggling with runaway bills during the cost of living crisis. For years, the cost of essentials like housing and childcare have grown faster than incomes, taking up a significant proportion of people’s budgets. For the people we help with debt advice, average private rental costs have shot up by 25% since 2019.
At the same time as costs have gone up people’s incomes have barely grown, especially at the lower end of the income distribution. Real incomes for the poorest fifth of households in 2021–22 were essentially the same as they were 17 years before.
Benefit levels play a key role here — since 2010, they have been significantly eroded by cuts, freezes, and below-inflation increases. Some groups have been excluded from support altogether.
Alice is a 23-year-old single parent with a very young child. She lives independently in a two bedroom housing association property but, because she’s under 25, she is paid a lower rate of Universal Credit. In addition, each month £62 is deducted from this already small sum to repay the advance payment made to her while she was waiting for her Universal Credit to start. The benefits she receives are simply not enough to live on. Alice is lucky because her family is helping her with food shopping, but even with this help she still has a negative budget. Each month she is building up more debt just to pay her bills and buy food for herself and her child.
But being in work is no guarantee of avoiding a negative budget. Though the minimum wage has gone up, much of it has been lost to inflation and it doesn’t protect a growing group of low-income self-employed workers. Of the people we help with debt advice who work full-time, 40% are now in a negative budget. Of those who are self-employed, 60% are now in a negative budget.
Chantale works full time as a nurse for the NHS. She is a single parent and lives with her dependent child in temporary council housing. Chantale has over £16,000 in debt from rent arrears, council tax debt and benefits overpayment and she struggles to manage her existing repayment plans. Recently she has seen increases to many of her essential costs. Her rent has gone up by 4%, her monthly energy bill has gone up by 5%, and her council tax has gone up by £150 per year. Chantale also struggles with rising costs for fuel, food and clothing. Even though she works full time, these increases mean that Chantale’s income is not enough to cover her essential costs, let alone her debt repayments. As a result, her debts are growing and she has fallen into a negative budget. She has received a warning that the council may evict her and is now afraid of becoming homeless.
The roots of these problems explain why, when costs exploded two years ago, there was nowhere to go but down. People who were already struggling were pushed further into the red, but we’re now also seeing new groups being pulled under. People who previously wouldn’t have been near a negative budget are now looking at a shortfall each and every month.
For example, mortgage holders used to have more money left over each month compared to other groups, but now they are among the deepest in the red. The same is true of our debt clients who aren’t on benefits — in 2019 they had nearly £70 left at the end of each month, now they have a shortfall of £20.
With more than half our debt clients now in a negative budget — and more and more people on the brink — it’s clear we’re at a tipping point. We can’t continue to live in a society where millions are sinking deeper and deeper into the red, and countless others are one unexpected setback away from going over the edge.
What does it mean to be living on empty?
Living on empty puts a huge financial strain on people, as month on month they struggle to make ends meet and — over time — fall deeper and deeper into debt. Even a small monthly deficit can build up into significant debt over time. Debts built up now to pay for the cost of living won’t just disappear as inflation comes down — they are a long-term problem we’ll be dealing with for years to come.
The effects of living on empty go beyond people’s bank accounts — it carries risks for mental health and wellbeing too. Having to always worry about money leads to stress, anxiety and feelings of hopelessness, which in turn can make it harder to manage your finances. Polling shows that, of those who either sometimes or often can’t afford their essentials, 66% say it’s having a negative impact on their mental health.
Going without essentials also has long-term impacts on physical health. Not being able to put on the heating means living in the cold, dark and damp, which is bad for your health. The same is true of not having enough food for yourself and your family, let alone nutritious and healthy food. Of those who either sometimes or often can’t afford their essentials, 46% say this is having a negative impact on their physical health.
Living on empty isn’t just a problem for the people facing it every day. When millions of people can’t make ends meet, there are knock-on impacts for the wider economy. People don’t have enough money to survive let alone spend on non-essentials, they’re less able to work and take care of themselves and their families, and have a higher need for public services. We can see these costs materialising with more people accessing the NHS because of the impact the cost of living crisis has had on their health. Mental health problems alone already cost the UK economy £117.9 billion per year and this looks set to increase unless something is done.
Fixing the problem
The fact that so many households are living on empty won’t change as inflation comes down. Costs will stay high. One-off support payments and other crisis support have been used to relieve the pressure on households in the cost of living crisis, but this approach isn’t sustainable. It’s untargeted and expensive. We need changes that will move the dial on cost of living permanently for households — not for the next few weeks or months, but for the long-term.
This is a generational challenge. Finding these fixes won’t be easy, and the current economic reality is likely to mean politicians are wary of high-spend solutions. But decision makers have it in their power to start turning the tide. Measuring living standards through negative budgets shows there is action the government can take that would make real inroads and put money back into people’s pockets.
It also highlights the pinch points in the system that are most likely to have a devastating impact on someone’s financial situation. Systems that should be offering support or forbearance are all too often unresponsive to the hardship of people paying more for essentials than they have coming in.
Here we’ve suggested two changes that the government could introduce to alleviate some of the immediate pressure on households. But if we want people to thrive, not just survive, more fundamental changes — to housing, benefits, wages, and consumer markets — are needed to really turn back the tide of people living on empty.
1. An immediate change — reduce and rethink benefits deductions
An immediate change that would make a big difference for those struggling the most — and at little cost to the government — would be to adjust the level and priority of deductions from benefits. Deductions are taken directly from people’s monthly benefit payments to cover debts they might have for things like energy, council tax, or rent, and advance or incorrect benefits payments. Nearly half (45%) of Universal Credit claims are subject to a deduction, with 1 in 5 subject to a deduction of more than 20%.
Benefits deductions cost people on average £62 every month, leaving them without enough to cover the rising cost of essentials, pushing people into hardship. Since January 2023, 60% of the Universal Credit claimants we’ve helped with deductions also needed help accessing a food bank or emergency charitable support.
Deductions have a huge impact on negative budgets. On average, people we help with debt who have a benefits deduction are building up over £100 in debt every month — more than double those without a deduction.
The majority of deductions are taken to repay money to the government. To immediately reduce the financial pressure on one of the groups struggling the most, the government should — at a minimum — consolidate deductions taken to repay central government debts and cap these at 5% of the Universal Credit standard allowance. This already applies to most third party deductions. The other changes needed are outlined in our recent report, The Welfare Debt Trap.
2. Preparing for future winters — targeted support to help people manage energy prices
Energy bills are nearly double what they were two years ago. This has been a key driver of the cost of living crisis, especially for low-income households. Polling shows that, in the last 6 months, nearly 7 million people have had to go without heating, hot water and electricity. This includes 2.2 million disabled people and 1.25 million children.
In the last few months, a staggering 2 million people on prepayment meters have been cut off from their supply because they couldn’t afford to top up. In 2022, we helped more people who couldn’t afford to top up their prepayment meters than in the whole of the previous 10 years combined. And 2023 is looking even worse. So far, we’ve already helped more than twice as many people as we had by this point in 2022.
And there’s no light at the end of the tunnel — market analysis suggests energy prices will remain far above historic levels for the next decade. So as well as taking immediate steps to help people this winter, a new approach is clearly needed to support households with high energy bills.
We have done a thorough analysis of what a system of targeted financial support could look like in Fairer, Warmer, Cheaper. Setting up a new system will take time, but it’s important to get this right from the start given energy bills are expected to remain high for years to come.
While additional targeted support for energy bills won’t single handedly fix negative budgets, it will go a long way to help people stay afloat while the government takes longer-term action to reduce energy costs. The system we’re proposing would take the average debt client who benefits out of the red and into the black for a full year. Instead of finishing each month £23.40 out of pocket, they would have £13.18 to spare, a swing of £438.96 over 12 months. For those who are struggling more, the gain would be higher.
Thriving, not just surviving
Some of the problems set out in this report will feel familiar. Most of them aren’t new. But we’re at a tipping point. We’ve been helping people find a way through their problems for 80 years. But our advice just can’t help people in the way it used to.
Spiralling numbers of people in negative budgets point to a series of policy failures. Our advisers do all they can to support people to get back on their feet, but it’s more difficult, more complex, and in too many cases there’s little they can do.
We can’t go on like this — millions of people living on empty, worried about their next bill, their next food shop, or what they’ll do if the washing machine breaks down.
Meeting the scale of this challenge isn’t easy. For years governments have failed to properly tackle living standards. But focusing on negative budgets can give us a benchmark for real change.
Our data can help policy makers identify the causes of the problems facing real people, and make decisions about which changes will have the biggest impact.
This report is only the first step in our negative budgets work — we are continually developing what we can do with our data and we’ll be publishing more analysis in the coming months.
Acknowledgements and methods
This report was written by Meri Åhlberg, Dr Thomas Hunter, Emer Sheehy, Jonny Tatam-Hall, Tess Thompson, and Morgan Wild, with invaluable input from Sumi Rabindrakumar, Jonathan Rushforth, Oliver Heath, Tanya Yilmaz, Julia Hamilton, Emily Nix and Chloe Maughan.
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, and this assessment will include recording income and expenditure information. Since 2019, over 260,000 clients 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 or not is determined using the formula Surplus = Income.Total — Essential.Expenditure.Total. If the individual has a monthly surplus of less than zero they are classified as being in a negative budget.
2. Polling data
Based on analysis of an online poll conducted by Walnut Unlimited for Citizens Advice. A nationally representative sample of 4,268 adults aged 18+ in the UK were surveyed. The figures have been weighted and are representative of all UK adults (18+). Fieldwork was conducted between 2nd — 12th June 2023. Walnut’s social research team is a member of the British Polling Council and abides by its rules.
3. Definition of disabled people
In this report, where we refer to disabled people this includes people who identify as disabled and/or having a long-term mental and/or physical health condition. This in line with the Equality Act 2010 which defines a person as disabled if ‘’they have a physical or mental impairment, which has a substantial and long term (has lasted, or is expected to last, for at least 12 months) adverse effect on their ability to carry out normal day to day activities’’.
