The new poor: how COVID-19 has pushed people into financial crisis
Just before lockdown, life was finally starting to improve for Dimitra Karathanasi and her two children. They had recently escaped from domestic violence. Dimitra was supporting her children and having therapy to help her cope with the trauma herself. She was sometimes having to take time off her job as a technical support worker, but there was stability in their lives.
She was on the minimum wage, but with the help of tax credits and child benefit she was getting by, as she had always done.
The mother-of-two had a flat that she let out to tenants and the rent she received from it allowed her to pay its mortgage and meet her own rent payments.
But when lockdown was imposed, she went into financial crisis almost overnight. She suddenly lost 20 per cent of her income because of being furloughed, and then found that her tenants couldn’t pay their rent, which meant she had to cover the mortgage out of her own resources, putting her into the red.
“In the first month of lockdown, I had to say to my landlord that I couldn’t pay my rent,” she explains – the first time that had ever happened to her. “The money I had went on bills and mortgage for my own place.
“Those first two months I was struggling big time. I couldn’t pay for any food, no food at all. School were sending us boxes. One Parent Families Scotland were sending boxes and Gorgie City Farm sent me a couple.
“Because we had recently fled domestic violence, there were no savings and we were already in a really difficult situation. I was drained.”
Dimitra was told she could have no help from the benefits system because she owned a flat.
Her tenants went on to be furloughed and were able to start paying rent again after two months but Dimitra had used everything she had to meet her mortgage payments and by August was forced to take a mortgage holiday.
There was a positive side to lockdown: Dimitra was able to focus on doing therapy via Zoom. She was also touched by the compassion she saw, from charities and individuals, and the school.
But the pandemic exposed how fragile her financial situation was. She was one of many who had previously managed to get by financially, who suddenly found themselves in crisis because of the pandemic.
Chris Scott knows what that feels like. In normal times, the self-employed photographer from Dundee does a brisk business with a portfolio of commercial, wedding, press and public relations clients. Three years ago, he invested £70,000 to turn a run-down unit into a photographic studio, allowing him to expand his business.
“I’ve got incredible clients,” he says. “I do work for the V&A in Dundee, the industrial sector and large solicitors’ firms.”
All was going very well indeed… until the pandemic hit. He got a £10,000 grant from his local authority in March, but had to pay out £8,000 to brides who had booked photography for their weddings but couldn’t get married. “It wasn’t for me to hold their money so I had to pay it back out of the grant,” he explains.
“I haven’t had any financial help since – all because I was showing a loss of £137 over three years.”
Those first two months I was struggling big time. I couldn’t pay for any food, no food at all. School were sending us boxes. One Parent Families Scotland were sending boxes and Gorgie City Farm sent me a couple.
The Self-Employed Income Support Scheme (SEISS) set up to provide support during the pandemic is evaluated on an individual’s average trading profits over the previous three years. Chris’s business was thriving: his income went from £39,000 to £56,000 in 2018, to £65,000 in 2019, showing that the investment in the studio was paying off. He even made a profit last year. But when profit was assessed against loss over the whole three-year period, he registered an overall loss of £137 and missed out on the lifeline support as a result.
“If I had bought one fewer chair for my studio three years ago, I would have qualified for an SEISS grant,” says Chris. “This was not exuberant spending or yearly running costs that’s caused me to be excluded, it’s a one-off investment to grow my business three years ago. So that decision has cost me the SEISS grant, as all my earnings are from being self-employed.”
Chris is one of many who for a variety of reasons have been excluded from government support schemes. Data analysis by Excluded UK in May and June estimates their number to be three million.
He is deeply frustrated by the “huge disparity” that exists in the rules on who is eligible for support and who is not, and the arbitrary nature of the boundary-setting. Those who have invested in capital or stock in their first two or three years, like he has done, are liable to miss out; similarly, he cites the case of a man who was earning just £30 over the £50,000 cut-off (those with earnings over £50,000 in three years do not qualify) and has been refused support. Others include people due to start a new job, company directors and those who earn less than 50 per cent of their income from self-employment.
“All we’re asking for is to be treated equally with someone who is on furlough,” he says.
All this has inevitably taken its toll. When we speak in November, Chris says: “Bills have been horrendous. I’ve still got rent and electricity and business insurance to pay for, and I have a storage unit. That’s all having to be paid when there is nothing coming in.”
Chris had a rent holiday for one quarter and then his father paid the rent on his studio for a further quarter.
He adds: “My partner was made redundant at the end of August so I’m having the responsibility to pay for the studio and all the home bills as well. It’s been really stressful and it’s going to get worse before it gets better.”
By December, things are little better. He has this update: “I have had some commercial product work, that’s kept the wolf from the door, but that’s it.” Two brides who had moved from 2020 to 2021 are now moving again, to 2022, a sign that the income of the weddings industry will be affected until 2023.
He and his partner are trying to diversify into doing fine art photographs of newborns, but ongoing tier three COVID restrictions have made it difficult.
He has also received contradictory information from the Scottish Government about grants available for small businesses and has had to get his MP, Chris Law, to write to officials on his behalf to clarify it. “The damage it’s doing is abhorrent,” he says. “You believe for one minute, you might be eligible at last for some government funding, only to be denied the next minute.
“It’s like being in the desert and thinking at the top of the dune there is an oasis, only to find at the top there are more dunes as far as the eye can see.”
Chris has always been able to meet his financial commitments before, so this situation is unprecedented. “I’m at crisis point,” he says. “I get very little sleep. I have lots of angry outbursts, the stress levels have been increased.”
He and his partner have been living off credit cards. “If it continues into January, I honestly don’t know, it’s every day as it comes.
“We are totally excluded from the benefits system. When Boris Johnson shut the whole country down, he did say no one would be left behind if we stuck to the rules. We did that, but we’ve been left behind.”
Chris and Dimitra are among an unknown number of people who have found themselves at the brink of ruin because of the COVID crisis. Their experience of having to navigate the social security system for the first time – both the pre-existing benefits system and the thicket of grants and support put in place because of the pandemic – has left many shocked by the inadequacies of what is available.
“There’s a whole new demographic of people who are on benefits,” says Mhoraig Green, strategic lead on social justice for Citizens Advice Scotland (CAS).
CAS has seen a big increase in clients drawn from the fourth and fifth quintiles of the Scottish Index of Multiple Deprivation – meaning the top 40 per cent by income. A third of people seeking advice on Universal Credit from citizens advice bureaux are in work; a quarter are homeowners.
Polling by the organisation also found that 47 per cent of people in Scotland have run out of money before payday since COVID-19 restrictions began, 30 per cent have seen their finances worsen, a quarter are concerned about rent and mortgage repayments and 23 per cent worry about being able to pay for essentials like food.
I’m at crisis point. I get very little sleep. I have lots of angry outbursts, the stress levels have been increased.
The income drop for people who have previously worked but are suddenly having to rely on benefits – if they can get them – is “really grave”.
“What’s happened is that the income crisis has highlighted long term issues with the social security system,” says Green. “The level it’s paid at is not enough for people to live a dignified life.
“It raises public awareness of how inadequate benefits are.”
CAS, along with other organisations, is pushing hard for the £20-a-week uplift in Universal Credit to be maintained after the immediate crisis of the pandemic is over. There was no commitment by Chancellor Rishi Sunak to that in the spending review last month.
The number of people who have been pushed into crisis also tells a story about the nature of employment in Scotland. “Our social security system is necessary as a safety net because there’s a lot of low paid employment in Scotland today,” says Green, adding that for many people, having unreliable hours makes matters worse.
She adds: “CAS believes that social security is a right, and that when people are in difficult circumstances financially they should find out what they are entitled to and claim it. We know people can be prevented from doing that for a number of reasons but we’d like to see social security regarded as a public service that people can rely on in difficult times in the same way that we rely on the NHS.”
CAS’s new online Money Map tool brings together all online advice and options for those facing a squeeze on their finances so they can find out what their entitlements are.
Myles Fitt, CAS’s financial health spokesperson, says: “The tool is for anyone and everyone impacted financially by the virus and it covers a whole range of opportunities to increase income, cut costs and get in control of personal and household finances.
“While we would always encourage policymakers to go further in providing financial support policies, it’s vital that people recognise they have rights and entitlements now, to help them get that extra bit of money that could make all the difference.”
Chris Scott is still waiting for that crucial support to materialise. He will have increased debts to deal with when this is all over, at a time when many others will have increased their savings. His frustration is palpable: “All we want is a level playing field.”