Britain is “sleepwalking into a debt crisis” after a steep rise in emergency borrowing by low- and middle-income households to cope with the Covid-19 jobs crisis.
Research by the debt charity Stepchange found that household borrowing and arrears linked to the coronavirus pandemic have soared 66% since May to £10.3bn. The number of people who are in severe debt has risen to 1.2 million – nearly doubling since March – with a further 3 million people at risk of falling into arrears after taking on extra short-term loans.
Phil Andrew, the charity’s chief executive, said: “This report paints a picture of a nation sleepwalking 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.”
Financial first aid: how to make it through the second Covid lockdown
With official figures showing the number of people made redundant rising steeply, many MPs are concerned the pandemic has devastated the finances of many vulnerable households. A report last month by a parliamentary committee laid part of the blame on the the universal credit (UC) system, which it said pushed many families into the arms of payday lenders because initial payments take five weeks to arrive.
Research in the summer by the Joseph Rowntree Foundation and Save the Children found nearly two-thirds of hard-pressed families on UC borrowed money to stay afloat. It found 70% of families had cut back on food and other essentials, while half had fallen behind on rent or other household bills.
The Stepchange report, Tackling the Coronavirus Personal Debt Crisis, found that 14.9 million people – 29% of the adult population – suffered a hit to their finances in March when the first lockdown began. While some people lost almost all their income from being made redundant, millions more had their salaries reduced after being furloughed or were self-employed and forced to cope with cuts in hours.
Stepchange said that among this group, 7.1 million had fallen behind on utility and council tax payments or borrowed to make ends meet, averaging £1,365 arrears and £1,577 in debt for each adult affected.
“Worryingly, the safety nets in place for those affected by coronavirus are not proving effective,” said the report. “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.”
Andrew said: “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.”
Source: Read Full Article