Reeves' budget offers positive steps for those struggling with debts – but there's still a way to go

Reacting to the budget this year comes with a slight feeling of exhaustion – so many policies had been floated, discussed and publicly ruled in or out even before the chancellor stood up and pulled the details out of her red box. It’s impossible not to feel a degree of sympathy for the situation in which the Rachel Reeves had found herself – trying to perform an economic miracle of simultaneously reducing the country’s hefty debt costs, while also making people feel better off.

So, it’s good that there were at least some very welcome changes announced that will directly help reduce the incidence of problem debt.

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From a debt advice perspective, the abolition of the two-child limit is arguably the most significant budget measure. The government’s own assessment suggests that this measure will lift 450,000 out of poverty. Another way of looking at this is that it reduces the pressure on parents who may otherwise be forced into problem debt to provide for their children. It is a decisive move that will reduce the risk of debt-related harm and ease pressure on thousands of families across the UK. Parents with more than two children, and single parents especially, are hit hardest by debt problems and struggle to keep up with essential bills. In 2024, one in 10 StepChange Debt Charity clients (11%) had more than two children compared to 4% of UK households. So, this announcement is warmly welcome.

Less headline-grabbing, but confirmed in the budget documents, is the extension of the Help to Save scheme to more of those with low incomes who do not currently qualify, and putting it onto a permanent footing, something that we’ve been calling for. This is a positive step and one that we are pleased to see, providing a valuable platform towards rewarding saving for those struggling to build financial resilience. The government must now drive up take-up so that as many people as possible can benefit.

Beyond these elements of good news, there are some other aspects of the budget that are less positive, if not unexpected. The budget documents confirm that council tax is expected to rise by a likely 5% in April, yet another hit to households struggling to manage the rising cost of living. We have seen arrears among StepChange clients double since the pandemic. Outdated regulations enable aggressive debt collection practices which exacerbate debt and leave households with little room to repay. The government must act quickly to make the collection system fairer and more attuned to the difficulty millions of households are having in meeting their bill.

There is also some nuance needed in terms of how we react to the budget measures on energy bills where, while reducing the cost of bills is welcome, the details of future support for households with low incomes to make their homes more energy efficient is unclear following the end of the Energy Company Obligation. For several years, the cost of living has been a significant driver of problem debt, and it remains one of the biggest causes of financial hardship among our clients. A major factor has been the steep rise in energy bills since 2022, leaving many low-income households unable to keep up with bills alongside other essentials. We remain firmly of the view that we need to see targeted support for low-income households in the longer-term in the form of a social tariff on energy.

Overall then, the budget is one that introduces some positive measures to alleviate the pressure of debt on some of the households who need the most support. While it doesn’t go far enough, and we still need to see further decisive action on energy costs, we welcome the respite that it offers especially to low income families, who are among the groups most disproportionately affected by problem debt.

Vikki Brownridge is the CEO of StepChange Debt Charity.

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