Bold plan needed to help households exit coronavirus debts safely, says charity

An estimated 1.2 million people affected by the coronavirus pandemic are in severe problem debt, according to a charity.

People may be having severe problems if they meet certain indicators, such as falling behind on essential bills or using credit to make debt repayments.

A bold longer-term strategy is needed from the Government to help households exit coronavirus-related debts safely, StepChange Debt Charity said.

Research from the charity, based on a survey of more than 3,200 people in September, indicates that levels of household borrowing and arrears attributable to coronavirus have surged to £10.3 billion since the start of the pandemic – a £4.3 billion increase since May.

The charity also believes that 2.87 million people across the UK who have been impacted by coronavirus are now at high risk of long-term debt problems.

The Tackling the Coronavirus Personal Debt Crisis report found nearly three in 10 (29%) adults have experienced a negative change of circumstance due to Covid-19, such as unemployment or redundancy, or furlough with a salary reduction.

People who were financially vulnerable before the crisis are particularly likely to have been affected by coronavirus.

Twice as many people with an income between £10,000 and £20,000 have fallen behind or borrowed to make ends meet as those with an income between £50,000 and £60,000, the charity said.

StepChange said that since March, 25 to 34-year-olds have been most at risk of falling behind on essential bills and borrowing to make ends meet.

Families with dependent children, particularly single parents, have been squeezed by falls in income and additional childcare costs.

StepChange said support measures need to go beyond the immediate crisis.

It wants to see targeted Government funding for struggling households to pay for interest-free loans, with repayments depending on income.

Increases to Universal Credit and other benefits should also be extended, it said.

A raft of financial support measures has been introduced by the Government and regulators, including the extended furlough scheme and payment deferrals on loans, but there are concerns that some people may be simply pushing debt problems further into the future.

Some people have also had problems accessing coronavirus support from their lender. The Financial Ombudsman Service (FOS) said this week that it had received more than 10,000 Covid-19-related complaints.

Phil Andrew, chief executive of StepChange, said: “Despite a bold initial reaction to the pandemic, the Government and financial services sector’s toolkit of responses has not evolved, and the result is a spiralling number of people being plunged into debt due to Covid-19. And the worst is yet to come.

“Without a bold, long-term vision for those financially affected by the pandemic there is a real danger of lasting economic and social damage that will deepen inequality, jeopardise the Government’s levelling-up ambitions and act as a drag on economic recovery.

“Strengthening short-term protections like furlough will buy time for those experiencing temporary financial difficulty. Now we need to see the Government provide targeted funding that can enable households to exit safely from coronavirus debt.”