For those still dealing with a post-Covid debt hangover, financial resilience is vital

It’s five years since Covid put the country into lockdown, workspaces fell empty and anyone working in the hospitality, retail or entertainment sectors, among others, faced the immediate and seemingly absolute loss of their income. When our ‘normal’ returned, it was very different.

The furlough scheme and other income subsidy schemes, along with the temporary debt forbearance schemes put in place by creditors at the instigation of regulators, were mobilised at pace and made a massive difference in shoring up people’s ability to maintain their housing and other daily needs in the absence of what was previously deemed “normal” work.

But what were the long-term consequences of the personal debt accumulated during the Covid era, and have household finances fully recovered? It’s far from straightforward to answer this question, not least because Covid has not been the only crisis facing households in the last five years.

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Our post-Covid research in 2021 found that, at that time, 4.6 million people impacted by Covid had built up arrears of £6.1bn over the pandemic period, but the distribution of that debt was not evenly spread across different types of households.

Since then, on the one hand, there have been some hugely positive and important long term structural changes. Some people now have permanently lower costs – such as reduced travel costs or fewer hours of childcare needed because of increased working from home.

And many financial firms and utility companies have adopted some of the emergency supporting mechanisms that they used during Covid into their business-as-usual practices, helping to ease their customers’ financial pressures more routinely. Many higher and middle-income households actually built-up savings during Covid as a result of lower spending.

On the other hand, some people accumulated a significant debt hangover during the pandemic because of the shortfall between their normal income and their income during Covid (often aligned with higher costs, especially those relating to children). Many hadn’t fully recovered when the next wave of financial crisis broke over them in the form of energy price rises and sharply rising interest rates.

Even now, with these issues receding, there are some particular groups who are still more likely than others to be bearing the continuing financial scars from these unprecedented events – notably, those on lower incomes who were already treading a precarious financial tightrope before Covid hit. While it’s now hard to untangle some of the effects of Covid from the subsequent cost of living crisis, the long tail of Covid debt left a lasting mark for some.

As we look to the future, this is one of the many reasons why at StepChange we are increasingly energised about the need to help households build financial resilience, especially rainy-day savings. We already encourage anyone eligible and able to set aside small amounts to bolster a rainy-day fund to do so, and over the coming years we hope to find new and innovative ways to help more people build up a financial safety net that can help if and when unexpected costs or events occur.

Vikki Brownridge is CEO of StepChange Debt Charity.

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