Financial Inclusion Monitor 2021

The University of Birmingham has been monitoring financial inclusion in Britain since 2013. This website provides key findings, selected charts and a link to the full downloadable report. The report authors are Stephen McKay and Karen Rowlingson.

Download the Financial Inclusion: Annual Monitoring Report 2021 now [pdf]

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Key findings

  • -19% output. The dramatic fall in GDP in the second quarter of 2020 due to lockdown where the economy shrank by 19%, an unprecedented amount in modern times

  • 1 million people on zero hours contracts in the first half of 2020 – the first time this level has been reached

  • 14.5 million people in poverty before lockdown equating to more than one in five people.  This includes 8.4 million working-age adults, 4.2 million children and 1.9 million pensioners (2019/20)

  • Furlough scheme supported 11.7 million employments between March 2020 and September 2021

  • Universal Credit caseload doubled from 2019-2020 from 3 million to 6 million 

  • 2.5 million emergency food parcels and support provided by the Trussell Trust in 2020/21

  • One in five have seen savings decrease during the pandemic, despite the fact that the household savings ratio quadrupled as a result of lower spending by many during lockdowns

  • 4.3 million adults in debt with household bills in January 2021

  • £45,000 student debt = the average Student Loan Company Balance for those who finished their courses in 2021.

Selected findings

The Economy

The fundamental cornerstone of financial inclusion is for people to have a sufficient level of income to meet basic needs. The source of income is also important as those in stable employment generally have better access to appropriate financial products, such as affordable credit, than those out of work or in insecure jobs. 

1:1 One of the most fundamental indicators of the state of an economy is GDP (Gross Domestic Product) which is the amount an economy produces each year. Figure 1.1 starts in 2006 and shows the dramatic fall in GDP in the second quarter of 2020 due to lockdown where the economy shrank by 19%, an unprecedented amount in modern times. It then bounced back by 16.1% in the third quarter before dropping again below zero and then bouncing back again in the second quarter of 2021 to 5.5%. The scale of these changes dwarfed the previous declines in GDP witnessed after the Global Financial Crisis in 2008/9. And the dramatic figures have also obscured the fact that, since 2015, GDP had been trending downwards and, indeed, was completely stagnant in parts of 2018 and 2019, well before the global pandemic crisis. 


Source: ONS. Last updated 30 September 2021.

The Labour Market

The lockdown of the economy in 2020/21 would clearly have a major impact on the labour market, though the impact has been tempered by various government interventions such as the Coronavirus Job Retention Scheme (CJRS), commonly called ‘furlough’.  

2.1  In Jan-March 2021, nearly 1.7 million people were unemployed, the highest number since 2016 though still well be below the peak of 2.7 million in 2012 following the Global Financial Crisis (see figure 2.1). There had been signs that unemployment was starting to increase before the COVID-19 crisis, possibly in response to Brexit-related developments but the dramatic rise was no doubt linked to the impact on the economy of the various lockdowns. Long-term unemployment (over 1 year and over 2 years) also increased from 2020 to 2021 indicating longer-term labour market trends. More recent figures for the first six months of 2021 suggested that unemployment was declining from the recent peak at the turn of 2020/2021.


Source: Labour Force Survey


Source: ONS


2.4  It is often assumed that zero hours contracts are most commonly taken by younger people and it is indeed true that workers aged 16-24 are more likely to have a zero hours contract than any other age group (9.9 per cent) but the second age group most likely to have such a contract are those aged 65 or more (4.6 per cent). These patterns may partly reflect the groups most likely to find the flexibility of 'zero-hours contracts' an advantage, for example, young people who combine flexible working with their studies, and those who have retired from their main occupation but are continuing with some work. There is little difference between men and women here (3.3 versus 2.7 per cent).

Incomes

The increase in unemployment and Universal Credit claims, signal that many families will have experienced a significant drop in income over 2020/2021.  

3.5  According to Standard Life Foundation’s Coronavirus financial tracker, families with dependent children have particularly suffered financially during the pandemic. In January 2021, around three in ten UK families with children (27%) were living on a lower income than a year previously, as a direct result of a pandemic-related loss of earnings. This equates to around four million of the UK’s 14 million children living in a family that has a reduced household income because of the pandemic; and 1.6 million of these children living in a family that has lost a third or more of its total household income over the same period. This has left 3 million children living in families that are struggling to buy food and other essentials; 4.5 million live in a family that is using consumer credit to make ends meet.


Source: Trussell Trust

Savings

Savings are clearly important in relation to financial inclusion because they can help people, particularly during periods of economic turmoil, to manage a drop in income and avoid taking out high-cost credit and/or experiencing problem debt people. However, the levels of saving in Britain was very low on the eve of the pandemic, particularly among people on low incomes who needed them most. 


Source: ONS. Last updated 30 September 2021

6.1  There are many ways to measure actual and potential saving. One approach is the household saving ratio as measured in the National Accounts by subtracting household spending – on goods and services, housing and financial services – from household income, which includes post-tax earnings from employment, benefits and net interest received, as well as imputed sources of income. A lower saving ratio may arise either because of a fall in households’ income, a rise in their expenditure or a combination of the two. As shown in figure 6.1, the savings ratio reached its lowest since the turn of the century at 4.0% in Q1 of 2017. Since then, it changed little before pandemic in 2020 led to a huge spike to 25.9% during Q2 of 2020, when opportunities for spending were rather curtailed. Since then the savings ratio has fallen to 14.3% in Q3 and 16.1% in Q4, still very substantially higher than at any time this century.  Latest data for the first six months of 2021 suggest the savings rate remains at about the same level as in the last six months of 2020 and is yet to fall back to pre-pandemic levels.

Borrowing

Some forms of borrowing/debt may be very positive in some circumstances, for example, in enabling people to buy a home or invest in education. However, those on the lowest incomes are often charged the highest rates for borrowing and may also be borrowing to pay for essentials due to low income. 

8.1 Our analysis shows that the annual rate of growth in credit card lending dropped dramatically in 2020 and the first three months of 2021. Indeed, from March 2020, the growth rate has been actually negative for the first time in recent decades. In May, June, July and August of 2020, credit card lending was more than 10 percentage points lower than the same point in the previous year, and in January, February and March 2021 it was around 20 percentage points lower than the same point the previous year.  Such falls are unprecedented.

Source: Bank of England


Source: Student Loans Company and House of Commons
8.5 Student loans are one form of borrowing. These are only paid back once the borrower earns over a certain threshold. Nevertheless, it is worth reflecting on the amount borrowed. The value of outstanding loans at the end of March 2021 reached £160.6 billion.

 

Download previous Financial Inclusion Reports