The Financial Fairness Tracker, commissioned by the abrdn Financial Fairness Trust and analysed by a team at the University of Bristol, has been monitoring the personal finances of UK households since the start of the pandemic (sample around 6,000 UK households, 900 in Scotland).

Nearly seven in eight Scottish households (85%) have taken some form of action in the past six months to help them to afford their energy bills. Most commonly they have avoided turning on the heating or turned it on less than usual (57%), while it has also become routine for Scots to wear more clothes than usual to keep warm indoors (53%). Other notable actions taken by Scottish households to reduce their energy costs included: reducing the use of their cooker or oven (38%), reducing the number of showers or baths they take (27%) and cutting back spending on food (24%).

These levels are lower than when people were asked the same question a year ago. The February 2023 Financial Fairness Tracker found more Scottish households were avoiding turning on the heating (80%) and reducing use of the cooker or oven (51%). This suggests some people are getting used to higher energy costs or have got used to absorbing them within their household budgets.

Around one in six (17%) households in Scotland – nearly 450,000 households – are ‘in serious financial difficulties’, meaning it is a real struggle for them to meet their day-to-day expenses, with many behind on their household bills or credit commitments. This matches the level of serious financial difficulties across the rest of the UK (17%).

Of those currently paying rent or a mortgage in Scotland, over half (55%) have seen these costs increase within the last six months. Scottish mortgagors (approximately 700,000 households) were more likely than other tenure group to have seen their housing costs increase by more than £100 per month (36%, compared with 13% of the 400,000 or so private rented households and 12% of the 600,000 social rented households).

Financial difficulties are taking a toll on households’ health and wellbeing as well. Nearly two in five Scottish householders (38%) felt that their financial situation was making their mental health worse; and a similar proportion felt that financial worries were causing them to sleep poorly (37%). These levels are similar to the rest of the UK (40% for mental health impacts and 39% for sleep impacts).

The research also found Scottish households had less of a financial cushion to deal with crises than those in the rest of the UK. Scottish households are more likely to have nothing in savings (29%, compared with 26% for the rest of the UK) and this gap rises considerably for those in the bottom income quintile (55% in Scotland, compared with 43% in the rest of the UK).

Conversely, lower-income Scottish households were less likely to have taken out new credit (48% compared with 61% in the rest of the UK) or to have borrowed money for daily living expenses in the past six months (28% compared with 44%). These findings may reflect lower absolute incomes in Scotland relative to the rest of the UK (driven primarily by England), before housing costs are accounted for, which may make it more challenging for lower-income Scottish households to access credit.

Looking ahead to the coming year, around half (47%) of all households in Scotland were ‘very’ or ‘quite worried’ about their overall financial situation over the next 12 months.

Mubin Haq, CEO of abrdn Financial Fairness Trust, said: “With temperatures plummeting below freezing this week many of us will worry about our energy bills soaring. For those on the lowest incomes the problem is significant as energy bills make up a much greater proportion of their household budget. Whilst for some the cost of living crisis is over, for others it has become more acute. The knock-on mental and physical health problems for people worrying about affording the basic essentials such as heating should concern us all.

“It is vital that those on lower incomes are protected but our findings show there is a long way to go. Government can help by incentivising more people to save, improving access to low-cost credit and investing in home insultation for those on the lowest incomes.”

Professor Sharon Collard, chair in Personal Finance at the University of Bristol, said: “Our analysis shows there is a long way to go before lower-income households in Scotland feel the benefit of investment to improve living standards and tackle child poverty.

“The rural-urban divide is particularly striking, with households in large urban areas performing worse on all our financial indicators compared to rural households. Households in the most deprived areas are over four times more likely to be in financial difficulties (31% compared with 7%) and nearly twice as likely to be losing sleep over their finances (51% compared with 28%) than those in rural areas.”