Debt held personally within households across the UK could be reaching dangerous levels according to new research conducted by StepChange. In a briefing published today, the charity examined recent figures from a YouGov survey of 3,796 people which were representative of the UK at large.
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The charity detailed that a personal debt “tsunami” of £6billion may already be attributable to the pandemic, which is stored up among some 4.6 million households and is set to get worse.
They warn that the coronavirus-related debt will drag on the economy as it starts to recover and debt charities are gearing up for a huge demand for their advisory services.
On the basis of the YouGov research, StepChange estimated that each affected adult has accumulated an additional £1,076 of arrears and £997 of debt.
Since the beginning of the lockdown period, they estimated that 1.2 million people have fallen behind on their utility bills, 820,000 people on their council tax, and 590,000 on their rent.
On top of this, up to 4.2 million people could have borrowed to make ends meet, most often using a credit card (1.7 million), an overdraft (1.6 million) or a high cost credit product (980,000).
With all of these figures taken together, it’s clear that everyone involved will struggle once job support and temporary forbearance measures are withdrawn.
However, the charity detailed that the government could still make changes to mitigate these negative repercussions as much as possible.
StepChange went on to commission new research to get a better sense of the scale of the problems likely to be felt by different groups.
The charity has identified three realistic main focus areas that could help the maximum number of household’s transition back to a sustainable financial position, and in turn reduce prolonged, long term pain to the wider economy:
Embed tapered ongoing protections and forbearance on housing/rent, credit repayments, and Council Tax.
The charity detailed that this would provide a sustainable route back to normality over a manageable period for households whose incomes recover but who are left with a debt backlog.
While the support itself could vary from person to person, StepChange highlighted that a central principle of gradually existing debt obligations could guide the overall guidance,
They welcomed the recently-announced extension of rental eviction rules but they warn that it simply pushes out the date of cliff edge but does not change the pressing need for effective protection and forbearance on rent arrears, council tax and credit that gives people a safe route to recover rather than sudden and harmful debt enforcement.
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Implement a central fund of at least £5billion to enable grants for those who fell behind or were forced to borrow during the pandemic.
This should be reserved for the worst-affected where realistic chances of repayment may not exist.
The charity detailed that this idea may not be as expensive for the state as it seems at first glance.
According to StepChange, the £5billion figure quoted is equivalent to around a tenth of the cost of the economic support schemes.
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The changes highlighted here should ideally be permanent in nature but could also be temporary if they prove to be difficult.
The reforms should address the shortfall between the support available and households’ realistic essential costs incurred during the pandemic that will otherwise leave households permanently facing hardship and unaffordable deductions.
Specifically, dropping the five-week wait and not seeking repayment of advances would make the biggest difference.
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Phil Andrew, StepChange’s CEO, commented on the recommendations made: “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 £6billion 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.
“As a charity, we have our own part to play. Like other debt charities, we are gearing up for a significant increase in demand for our usual services.
“We are also working on a specific solution to help people whose finances have been hit by the pandemic and who need a short term helping hand to get back on track without jeopardising their credit status.
“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.”
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