Covid money worries lead to new level of debt crisis
Levels of household borrowing and arrears attributable to coronavirus have soared to £10.3 billion since the start of the pandemic, sparking a "new and unprecedented" debt crisis, a charity has warned.
The number of people affected by Covid who are in severe problem debt has risen to 1.2m – nearly doubling since March – with a further 3 million at risk of falling into serious financial problems, according to StepChange’s report, Tackling the Coronavirus Personal Debt Crisis. The study found that debt has increased by £4.3bn or 66 per cent since May.
The results of the poll show 14.9 million people – 29 per cent of the adult population – have experienced a negative change of circumstance due to Covid-19, such as unemployment or redundancy, or furlough with a reduction in salary. Among this group, 7.1 million have fallen behind on essentials or borrowed to make ends meet, averaging £1,365 arrears and £1,577 in debt per adult affected.
Meanwhile, 17 p er cent of those whose financial situation has been negatively impacted have experienced one or more indicator of hardship since March, including having had fewer than t wo meals a day for two or more days and having rationed or gone without basic utilities – such as electricity, heating or water – for five or more days.
Since March, 25- to 34-yearolds have been most at risk of both falling behind on essential bills and borrowing to make ends meet, and of experiencing one or more forms of hardship, while families with dependent
children – particularly single parents – have been squeezed by falls in income and additional childcare costs.
Stepchange warned that the safety nets in place for those affected by coronavirus are not proving effective and has called on the government to take action. Of those who have made an application for Universal Credit since March, 24
per cent are in severe problem debt and 28 per cent are showing signs of financial difficulty.
Phil Andrew, chief executive of Stepchange, said: “This rep or t paints a picture of a nation sleep-walking into a debt crisis. 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. And the worst is yet to come.
“This winter, a second national lockdown will drive unemployment, reduced hours and rising energy bills, all of which is hampering economic recovery. 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 levellingup ambitions and act as a drag on economic recovery.”
He added: “Strengthening shor t-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.”
Stepchange is calling for targeted government funding to help households struggling financially due to Covid. The funding would pay for interes t-fre e loans, with re -pay - ment contingent on income, t o h e l p s t r u g g l i n g h o u s e - h o l d s a d d r e s s C ov i d - r e l a te d a r r e a r s a n d d e b t s a f e l y.