The Standard Financial Statement and low-income households

Daniel Kelly, co-ordination and engagement manager at the Money and Pensions Service, describes the Standard Financial Statement and recent updates in household finances.

In the new financial year, when tax and benefit changes come into effect, it’s the perfect time of year to review household finances. That’s why we also update the Standard Financial Statement (SFS) spending guidelines at the same time.

What are the SFS spending guidelines?

The SFS spending guidelines are used in debt advice and are a statistically derived view of what low-income households typically spend on the flexible categories of expenditure. These figures don’t take a moral judgement on this expenditure and have no way of declaring whether this expenditure is reasonable but simply state the typical amount.

The agreement from creditors is that they will not question any expenditure that falls below this amount and the commitment from advisers is that when a client’s expenditure is above the guideline that they would look to provide some commentary, and where feasible and helpful evidence, to explain why this expenditure is reasonable to the customer’s circumstances.

The result is that we see less time taken up with advisers debating with creditors on the details of a budget, allowing more time to serve customers.

Changes to the SFS in 2019

However, this typical view that the spending guidelines take means they are impacted by changes in the wider economy. The recent Households Below Average Income stats reported that child poverty had increased in the UK by approximately 200,000 children. This echoes many of the concerns we hear from debt advice agencies, and my own experience as an adviser, that some groups – such as single parents – are struggling.

These changes are likely to have had an impact on the spending guidelines for 2019. There has been a 1.7% drop in the food and housekeeping guideline for children under 16. While this drop is offset by the increase in adults, it means that for single parent households the spending guidelines have not kept pace with inflation. However larger socio-economic factors are also in play as the guidelines are applied.

The SFS is a tool that aims to provide a flexible framework so that all customers can have a reasonable standard of living while dealing with their debts. However, the starting point of any reasonable standard of living is a reasonable income – and the SFS has no control over income. We are receiving reports of more deficit budgets and more cases where the income simply cannot support a reasonable, or even what could be considered a ‘safe’, standard of living.

Call for case studies

We want to hear from advisers and creditors how they are dealing with these cases and would particularly appreciate any anonymised cases studies with an SFS to understand how the wider impact of poverty affects the contents of an SFS and the debt advice support these customers require.

If advisers are also finding that single-parent households or families with a large number of children are more often impacted – by additional explanation/evidence due to the spending guidelines – then we would also be eager to receive evidence on this to consider.

Child poverty is a significant challenge and we need government, industry and all of us in society to find ways to address it. In the meantime, we need to collectively find better ways to help people maximise their income where possible and, as ever, never lose sight of the human circumstances that can sit behind the figures on a financial statement.

If you are an adviser with examples of cases where the income simply cannot support a reasonable standard of living, or if you would just like to find out more about the SFS and how it is calculated, contact me at [email protected].

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