A leading debt charity has warned that 4.6 million British households have been hit by a £6 billion “personal debt tsunami” thanks to the Covid-19 pandemic – and it could get worse if left unchecked.
StepChange say that they are gearing up for a doubling demand for debt advice at the end of the year as the economic fallout from the coronavirus crisis continues to be felt.
According to YouGov research, debt-ridden adults have already accumulated an additional £1,076 in rent arrears and £997 of debt on average as of late May.
The misery, damage and economic drag that will inevitably follow the pandemic can and should be mitigated through public policy
And with the lockdown period still in place StepChange estimates that 1.2 million people have fallen behind on their utility bills, a further 820,000 on council tax and 590,000 on rent. To make ends meet, the charity reckons that 4.2 million people have been forced to borrow, with 1.7 million using a credit card, 1.6 million turning to an overdraft while 980,000 opted for high-cost credit.
Elsewhere, borrowing money from family and friends, applying for Universal Credit and selling possessions have been the answer for those trying to keep their head above the water.
The research also suggests that 70 per cent of those pushed into debt were not in financial difficulty before the lockdown. But for those who were already struggling, the impact has been disproportionately hard with 45 per cent of those in severe problem debt reporting that their finances have been affected by Covid-19.
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With the situation set to worsen when the Government’s furlough scheme ends later this year, coronavirus-related debt will “act as a drag on economic recovery” say StepChange as they outline three recommendations for an exit plan that will lift people out of the debt accrued in the crisis.
They have called for tapered ongoing protections and forbearance on housing/rent, credit repayments, and council tax, urging for a gradual exit rather than a cliff edge to repayments.
Other suggestions include reforming Universal Credit to end the five-week wait, remove the need to repay advances and ensure the benefit meets essential costs.
They are also calling for a central £5bn fund to give people who were pushed into debt a grant to settle their debts.
StepChange Debt Charity CEO Phil Andrew said: “We were already dealing with a debt crisis, but Covid has so far added another four million people and counting to the number who are going to need help finding their way back to financial health. With £6 billion of additional household debt directly attributable to the effects of the pandemic, this is a problem that isn’t going to solve itself.
“Cost might be seen as a barrier to the recommendations we outline. However, the costs of not intervening would ultimately be higher. The misery, damage and economic drag that will inevitably follow the pandemic can and should be mitigated through public policy, and the approaches we suggest are the biggest game-changers.
“The false calm in which we find ourselves while furlough and forbearance take the strain will not last indefinitely. We will be ready to help as more people find their debt problems crystallising over the coming months.”
Today the Treasury responded to money fears by announcing a further £38m support package to debt advice organisations so they can deal with the increased demand.
The Economic Secretary to the Treasury, John Glen said: “We know that some people are struggling with their finances during this difficult time, which is why we want to make sure people can access the help and support they need to manage their debts and get their finances back on track. The joint funding package will help debt advice providers to continue with — and increase — their vital work.
“This extra funding comes on top of the unprecedented package we have put in place to support individuals, businesses and the economy through the coronavirus outbreak.”