New research from StepChange Debt Charity reveals levels of household borrowing and arrears attributable to coronavirus have soared to £10.3 billion since the start of the pandemic, an increase of £4.3 billion (66%) since May.

StepChange’s report, ‘Tackling the Coronavirus Personal Debt Crisis‘, has found the number of people affected by Covid who are in severe problem debt has risen to 1.2 million, nearly doubling since March, with a further 3 million at risk of it.

The charity is warning that with coronavirus restrictions set to hamper economic recovery for months to come, the country is facing a new and unprecedented debt crisis unless the government implements a clear, preventative plan to tackle it.

StepChange commissioned national polling in September, updating and extending a survey conducted in May, to understand how coronavirus has affected personal finances six months into the pandemic in Great Britain.

The results show 14.9 million people – 29% 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.

Worryingly, the report finds the safety nets in place for those affected by coronavirus are not proving effective. Of those who have made an application for Universal Credit since March, 24% are in severe problem debt and 28% are showing signs of financial difficulty.

Meanwhile, 17% of those whose financial situation has been negatively impacted have experienced one or more indicator of hardship² since March, including having had fewer than two 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.

The report also reveals that financially vulnerable groups who were at high risk of difficulty and hardship at the outset of the crisis are over-represented among those affected by coronavirus.

Since March, 25-34-year-olds 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.

Financial difficulty is also unsurprisingly associated with low household income, with twice as many people with an income between £10k and £20k having fallen behind or borrowed to make ends meet as those with an income between £50k and £60k, while three times as many have experienced hardship.

In response to this growing crisis, StepChange is calling on the government to urgently develop plans that go beyond the current crisis management response to a recovery strategy that puts people swept into debt at its heart. The report has identified three pillars of a strategy to underpin the country’s economic recovery:

1.The government and regulators must extend and strengthen protections for those experiencing financial difficulty during the pandemic

More than 3m people negatively affected by coronavirus have fallen behind on essential bills such as council tax, rent and utilities since March, despite support mechanisms in place. With some of these mechanisms coming to an end, and restrictions and social distancing set to continue well into next year, the government and regulators risk leaving millions more at risk of aggressive enforcement action, eviction and insolvency unless they update and extend protections. The report details how – by tabling measures including extending the Government’s council tax fund and suspending bailiff collections activity.

2.StepChange is calling for targeted government funding to help households struggling financially due to Covid. The funding would pay for interest-free loans, with re-payment contingent on income, to help struggling households address Covid-related arrears and debt safely.

StepChange estimates there are nearly 3 million people affected by coronavirus who are now at high risk of long-term debt problems. As a matter of necessity, the government should act to help financially vulnerable people in this group, through the creation of targeted funding that provides no-interest loans with deferred, income-contingent repayment to help the following three groups of households:

  • Households with unmanageable priority arrears
  • Households who will be forced to into survival borrowing to make ends meet
  • Households who have had to borrow to pay for essentials due to coronavirus

3. The government should put in place a more effective safety net for those experiencing financial difficulty by expanding local emergency support and ensuring households have sufficient income to make ends meet

It is clear from the data above that current safety nets are not protecting those who need it most. 24% of people who have made a Universal Credit application since March are in severe problem debt and 28% are showing signs of financial difficulty. The report sets out how government can prevent hardship more effectively through targeted investment in the social safety net, including by maintaining the £1,000 uplift to Universal Credit/working tax credit from April next year, extending the uplift to disability and legacy benefits as soon as possible, and by suspending non-priority deductions to repay debt from Universal Credit.

Commenting on the report, Phil Andrew, CEO of StepChange, said “This report 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 due to Covid-19. 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 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. Concentrating support in this way can reduce the hardship and damaging impact of long-term debt on health, mental health and the economy, as well as countering the impact of coronavirus on inequality.”