A year on from the start of the pandemic, new research from StepChange Debt Charity has revealed that nearly a quarter (23%) of the 1.6m people who’ve accessed credit payment deferrals have subsequently missed repayments, while half (50%) say they have resumed repayments but with difficulty.
Since last week people struggling financially as a result of Covid problems can no longer apply for the standard payment deferrals put in place as temporary support measures. Yet the charity is warning that millions are still struggling financially, redundancies and unemployment are looming and the long tail of debt problems shows little sign of abating.
The report found that nearly 80% of those whose income has been hit by covid have not recovered financially. The charity estimates more than 14 million people have suffered a hit to their income which has affected their ability to pay for essential costs since March 2020. As of January this year, 11 million of those affected said they were still struggling to meet those costs.
The research highlights how the pandemic has exhausted coping strategies and eroded financial resilience, increasing people’s likelihood of falling into problem debt. StepChange estimates £25bn of arrears and borrowing directly attributable to Covid has been built up since March 2020, with 10.6 million people having borrowed to make ends meet. Most worryingly, 2.8 million people have used high-cost credit to make ends meet in this period.
StepChanges says that the measures put in place by Government and regulators to protect people from the worst effects of the pandemic have been a lifeline used by millions. However, these temporary safety nets have not proved entirely effective – nearly half (45%) of those who started receiving Universal Credit after March 2020 have experienced hardship, while six in ten are showing signs of financial difficulty. Meanwhile, nearly half a million private renters have fallen behind on their rent since the start of the pandemic, accruing an estimated £370m in arrears.
With traditional coping strategies and reliance on emergency measures worn to the bone, many have had to resort to more extreme alternatives to get by: one in five of those who’ve suffered a hit to their income due to Covid says they or their children have experienced hardship, including skipping meals, rationing utilities or going without appropriate clothing for the weather since the beginning of the pandemic.
The debt charity is now calling on government and regulators to put in place measures to support households to make ends meet, provide ways to address arrears and debt affordably and protect those who are threatened with enforcement action.
This includes helping renters struggling with arrears due to the pandemic stay in their homes. StepChange and has called for protections against eviction and a package of grants and interest-free loans to help people address rent arrears safely. The charity is also calling on the government to extend the £20 per week uplift to Universal Credit beyond September this year.
The company is also calling on the Government to amend council tax regulations to require councils to put in place affordable repayment plans for those experiencing difficulty before court and enforcement action are taken, taking vulnerability and financial circumstances into account and using exceptional funding to write-off debts where necessary.
StepChange CEO Phil Andrew, said “As the country continues to try returning to normal, there are millions of households still struggling with covid debt for whom ‘normal’ is a distant dream. A year into the pandemic, many households’ coping mechanisms are exhausted and the temporary support measures that have kept them afloat are slowly being withdrawn. Without urgent action to shore up the finances of the millions struggling to meet essential costs, covid will cast a shadow over the economy for years to come.”
“It is within the Government and regulators’ gift to support those hit hardest by the pandemic, but it will require coherent, long-term planning and financial backing. By implementing measures including the creation of an emergency financial package for renters, a permanent £20 uplift to Universal Credit and new packages of targeted support to help people address covid-related arrears and debt affordably, , we can reduce the risk of financial long covid for households across the country.”