Credit, Collections & Insolvency News
Over 6.5 million households are in debt, or face the prospect of falling into debt within a month, should they lose their jobs, according to new research from The Equality Trust. Over 40 per cent of non-retired households have too little saved to pay even a month’s worth of household bills, the research finds. A non-retired household in the richest 10 per cent has on average £49,500 saved, whilst a household in the poorest 10 per cent has just £100 on average. Many families are also vulnerable to one-off financial shocks. Over a quarter (28%) of non-retired households has too little saved to pay the £540 needed for a boiler to be replaced.
Executive Director of The Equality Trust, Dr Wanda Wyporska, said “Over a third of households owe more in debt that they have saved, and millions more face falling into trouble in the event of a financial shock they cannot avoid. Many households are barely clinging on, with high costs, low incomes, and reduced government support. We only need to look around to see that the scale of economic inequality in this country has reached dangerous levels. This is not just a financial issue, we know that inequality means that our trust in others is lower, as well as worse levels of physical and mental health for us all. It even holds back our economy.
“Government savings policy supports the already well-off at the expense of those struggling just to get by. This cannot continue. The Government must change direction and offer greater support for its Help to Save scheme, rather than projects such as the lifetime ISA, which only help the richest. Current Government savings policy prevents many families on low incomes from saving for their future. Instead it favours the well-off, by offering them tax free savings through ISAs, and bonuses through the new lifetime ISA.
Those saving in a lifetime ISA will see the Government add a 25% bonus on top of their annual savings, up to a maximum of £4,000. But this will not benefit the 50% of non-retired households which have less than £4,000 saved in all formal financial assets. Even fewer would be able to save £4,000 every year. This means the lifetime ISA will provide a £1,000 bonus to wealthy households, and almost nothing to those on low incomes.
The Equality Trust calls on the Government to scrap the lifetime ISA and instead use this funding to boost their Help to Save scheme, which is specifically aimed at supporting low income households receiving the in-work support of Universal Credit (UC). The Government plans to spend just £70 million on its Help to Save scheme by 2020, but over ten times this (£850 million) on the lifetime ISA scheme.
Instead of withdrawing UC as recipients earn more, and then topping up their Help to Save accounts by 50% of that recipient’s savings, the Government should simply place withdrawn UC into the recipient’s Help to Save account. This would drastically improve the amount the scheme would help the poorest save. For example, someone saving £100 would be £135 better off as a result of this policy.
Caroline Siarkiewicz, Head of UK Debt Advice for the Money Advice Service said “People often don’t think they can save, but when put to the test, they can not only build up a savings pot, but they can save regularly too*. Saving is vital so that people can better cope with life events, reducing the risk of falling into debt. When it comes to people in debt, we need to make sure that saving is built in alongside repayments to put people in the best position to stay debt free.”
