FAMILIES face a return to 1980s levels of financial hardship if urgent action is not taken, according to a new think tank report.

The Institute for Public Policy Research (IPPR) Scotland has warned that a “perfect storm” of government furlough schemes and bill payment holidays ending, as well as reduction in income will see families struggle over winter.

The Weathering the Winter Storm report, published today, states that almost half of working Scots suffered some form of reduced income over the first lockdown, and says the Scottish Government’s new five-tier lockdown system makes the case for providing support even more urgent.

The think tank warns the five stage lockdown system means that large parts of the country could fall under severe restrictions as we approach winter, putting families’ finances under even greater strain.

It has called for urgent action form both the Scottish and UK Governments to tackle the crisis, including asking for a £40m investment to help those most in need.

The money, they suggest, should be used to provide a winter school clothing grant and to backdate the first payment of the Scottish Child Payment to when applications opened.

Rachel Statham, an IPPR Scotland senior research fellow, said that many families entered the pandemic with limited financial reserves, which have now been depleted.

She 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.”

Ms Statham said that fixing the country’s finances would require “greater spending” from Westminster to support jobs and businesses throughout winter, and increase social security provision.

She added: “ 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.”

The report also found that around 10 per cent of Scots had fallen behind in their bills prior to the coronavirus crisis, and many had limited, or no, savings due after a decade of austerity, increasing levels of insecure work and benefits cuts.

Around 1.1million people in Scotland (25 per cent) were only able to survive for a month without an income prior to the pandemic,the report found, with the figure rising to a third for working-age people.

People struggling to make ends meet before the pandemic were twice as likely to face a reduction in income throughout the crisis, compared to those who were living comfortable.

Renters, disabled people and those from a black, Asian and minority ethnic background (BAME) were more likely to be struggling financially before the crisis than those from other backgrounds.

In May this year, almost half of all families with children said they were struggling to make ends meet, and working parents more often experienced a significant and sustained fall in their wages than people without children.

IPPR Scotland has called for the Scottish Government to introduce a financial resilience tracker, and a strategy to manage the financial hardships facing working Scots.

It has also called for the UK Government to make the £20 a week increase in Universal Credit and Tax Credit payments permanent - a move already called for by the SNP, Labour and the Liberal Democrats repeatedly over recent months.

Along with a £40m investment to support the hardest hit families, the think tank has also called for a dedicated Covid-19 Arrears package to be set up in conjunction with energy providers, housing associations, councils and lenders.

They suggest it could combine debt write-offs with interest free loans to help people who have got into arrears due to the pandemic clear their debts.

Mubin Haq, Director of Standard Life Foundation, which funded the research, said:“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.”

A Scottish Government spokeswoman said:”“We have provided an unprecedented level of support during the pandemic, including an initial £350 million Communities funding package to ensure support for those most in need with over £110 million being spent on food support and help for people renting their home. This has been followed by further investment including £30 million for local authorities to tackle financial insecurity and to continue Free School Meal provision during holiday periods right through to Easter. Furthermore, our Self-Isolation Support Grant offers £500 to low income workers who are asked to self-isolate and are at risk of losing income as a result. Our Scottish Child Payment has also been a priority and applications will open next month and payments start in February helping us to tackle child poverty head on for families with children 6 and under.

“We’ve created a £100 million support package to help people looking for work or those at risk of redundancy. This includes a job guarantee for young people, a new national retraining scheme which will support up to 10,000 people over the remaining months of this financial year, and more funding for immediate assistance and advice if people are made redundant. To help parents access jobs and increase their earnings we are making over £7 million available for our Parental Employability Support Fund in 2020-21 and have extended Fair Start Scotland for a further two years to March 2023.

“We have continually called on the UK Government to reverse welfare cuts which are hitting harder than ever, and to make fundamental alterations to Universal Credit and urged them to maintain the recent £20 increase which is imperative if we are to stop more people being pushed into poverty.”