Marvin OnumonuUnemployed workers saw their living standards drop and financial distress increase, even with benefits, according to analysis from the Institute for Fiscal Studies (IFS).
Spending fell by around 20% in the first few months after losing a job, with only a third of lost earnings made up by higher benefits.
For the third of workers with the lowest replacement rates, total income fell by around 90% and spending by 26%.
Meanwhile, for the third of workers with the highest replacement rates, income fell by around 30% and spending by just 6%.
After six months of unemployment, the share of people making an energy bill payment dropped by 8%.
The share incurring overdraft charges increased by 4%, from 16.0% to 16.6%, and the share with a current account in negative balance rose by 8%, from 22.1% to 23.8%.
Credit card charges and payday loan usage declined, which could be linked to reduced access to credit or willingness to use it.
Among the third with least protection, the share making energy bill payments fell by 17% and rental payments by 20%.
Among the third most protected, energy bill payments dropped by just 3% and rental payments did not decline.
Isaac Delestre, senior research economist at the IFS, said: “The immediate financial shock of job loss is substantial for many households, with declines in spending and numerous warning signs of financial distress.
“These patterns are strongly correlated with how much of a worker’s lost income is replaced by benefits.
“The government’s proposed unemployment insurance benefit could serve to provide more protection for some of those who currently have the least support.”
Delestre added: “As ever, however, there are trade-offs and more generous unemployment benefits would also blunt incentives to return to work more quickly.”
