Debt advice charity StepChange is warning of a £6 billion ‘personal debt tsunami’ which can all be linked directly to the coronavirus pandemic. StepChange believes that 4.6 million UK households – around one-sixth of the total number of households – will experience severe debt problems as a result of Covid-19.
For some people, coronavirus has improved their financial situation – perhaps they might now be working from home and their income is unaffected, while their expenditure on travel, socialising and luxury spending has fallen dramatically.
Others have not been so fortunate – they might have lost their jobs or might be furloughed and receiving reduced income, or they might be newly self-employed and so don’t have recourse to the Self-Employed Income Support Scheme.
The FCA has taken unprecedented action by instructing lenders in almost every sector to grant payment holidays to affected borrowers.
StepChange’s survey suggests that, by late May 2020, each affected person had accumulated an additional £2,073 of debt on average – £1,076 in the form of arrears and £997 in new debt. These figures are expected to rise further as the health crisis continues.
It believes that, since the Covid lockdown was imposed, 1.2 million people have fallen behind on their utility bills, 820,000 people have fallen into arrears on council tax and an additional 590,000 are experiencing rent arrears. 4.2 million people have taken on some form of borrowing in order to meet expenses during this period. It adds that 70% of those affected were not in financial difficulty prior to lockdown.
StepChange also says that the debt ‘tsunami’ will hinder the UK’s economic recovery after an eye-watering drop in GDP of minus 20.4% was announced for April.
StepChange CEO Phil Andrew said:
“We were already dealing with a debt crisis, but Covid has so far added another four million people and counting to the number who are going to need help finding their way back to financial health. With £6 billion of additional household debt directly attributable to the effects of the pandemic, this is a problem that isn’t going to solve itself.
“Cost might be seen as a barrier to the recommendations we outline. However, the costs of not intervening would ultimately be higher. The misery, damage and economic drag that will inevitably follow the pandemic can and should be mitigated through public policy, and the approaches we suggest are the biggest game-changers.”
Debt advice charities are expecting demand for their services to double before the end of 2020.
The Government is to provide £37.8 million of additional funding for debt advice in England, with an additional £5.9 million to be provided to the devolved administrations in Northern Ireland, Scotland and Wales. The bad news for firms is that they will be expected to meet £14.2 million of this via an increase to the financial services (debt advice) levy they pay to the Financial Conduct Authority.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.