The think tank’s researchers found that up to one in ten Scottish households were behind on bills at the beginning of the COVID-crisis and 45% of Scottish workers experienced some form of pay drop during the first lockdown.

It was now warned that the new five-tier coronavirus system means that large parts of the country could fall under severe restrictions as we approach winter, putting families’ finances under even greater strain.

The report found that many families have very limited financial reserves following a decade of austerity, increasing levels of insecure work and benefit cuts. Throughout the crisis, families’ finances have been tested to – and beyond – breaking point, damaging their wellbeing and the long-term prospects for Scotland’s economic recovery, according to IPPR Scotland.

Just before the pandemic hit, 220,000 households in Scotland (one in 10) were behind on bills, rising to one in four among the poorest households

Prior to the COVID-19 crisis, 1.1 million people in Scotland (one in four) could cope for only one month or less if they lost their main source of income. This rises to one in three people of working-age people in Scotland.

The report found that people who were ‘struggling to get by’ pre-crisis were more than twice as likely to face an income hit throughout the crisis compared to those who were ‘living comfortably’.

IPPR Scotland has also revealed that almost one in four of those ‘struggling to get by’ before the crisis experienced a pay drop of 20% or more during the first lockdown.

In May, almost half (49%) of families with children were struggling to make ends meet. Working parents were also more likely to have experienced a significant and sustained fall in pay than workers without children.

Renters, disabled people and black Asian and minority ethnic workers were all more likely to report ‘struggling’ financially coming into the crisis, risking greater exposure to the economic impacts of the virus.

IPPR Scotland is calling for urgent action to repair peoples’ finances, in time to protect families in Scotland this winter and beyond. Among a number of recommendations, they call for:

• The Scottish Government to introduce a new financial resilience tracker and strategy, to give early warning of financial difficulties facing people in Scotland.
• The UK government to make its temporary uplift of up to £20 per week in Universal Credit and Tax Credits a permanent lifeline for low income families, extending the uplifts to all legacy benefits.
• The Scottish Government to invest a further £40 million to help low income families with children this winter, introducing a new Winter School Clothing grant, and backdating the first payment of the Scottish Child Payment back to when applications open.
• The Scottish Government to ensure further COVID-crisis business support comes with ‘strings attached’ to drive fair work
• The Scottish Government to work with lenders, energy providers, housing associations and councils to deliver a
• A COVID-19 Arrears package - combining debt write-offs and interest free loans to help people and families who have built-up Covid-19-related arrears and debt for household bills.

Rachel Statham, IPPR Scotland senior research fellow, said: “Now that we can see the ongoing five tier restrictions many will face through a COVID-19 winter in Scotland, further support is required to keep families afloat. Over a million people in Scotland went into this pandemic with only very limited financial reserves, and this crisis has already tested families’ finances to – and beyond – breaking point.

“With likely further peaks of the virus and significant jobs losses across Scotland and the rest of the UK, there is now an urgent need to repair household finances across the country before winter hits.

“Without urgent action we could see families’ finances tip over, damaging the health and wellbeing of hundreds of thousands of people now, and damaging Scotland’s economic recovery over the long-term.”

She added: “We need to see urgent action from the UK and Scottish governments to go beyond the support already offered through the first phase of the crisis. This will require greater spending from the UK government to support jobs and businesses through the winter, as well as increasing UK-wide social security provision. While new funds announced by the Scottish Government to support families in crisis are welcome, we must now go further to strengthen our social safety net and prevent a winter crisis for families across Scotland.”

Mubin Haq, director of Standard Life Foundation, added: “The last decade saw some improvement in Scottish families feeling more financially secure. However, the pandemic has seen many facing serious financial difficulties.

“UK and Scottish governments did respond to the enormous challenge, resulting in a positive impact, helping to bolster incomes and providing support with debts. Yet that support is now winding down, just as COVID-19 numbers are rapidly rising. With furlough and self-employment support morphing into less generous schemes at the end of October, and payment holidays on bills coming to an end at the same time, many face a perfect financial storm.

“We risk a return to the 1980s and the misery many families faced. Now is the time to be investing in our communities and workplaces to avoid long-lasting financial distress.”