Government must help households pay off bills or face a £6.1bn personal debt tsunami after lockdown, charity warns
- It estimated 4.6m people financially hit by the coronavirus are in the red
- This amounted to around £997 of debt and £1,016 of arrears on bills
- It warned 45% of people previously in problem debt have been hit by the virus
- It called for repayment plans for council tax and utility bills to be brought in and for a £5bn pot to be set up to help those financially struggling pay their bills
The coronavirus crisis will leave millions of households facing a £6.1billion collective personal debt tsunami, one of the UK's most well-known debt charities warns today.
The Government should hand out £5billion in grants to those hardest hit financially so they can repay their debts, bring in repayment plans for those behind on their council tax and turn the Universal Credit five-week advance system into a grant in most cases, StepChange said.
Its chief executive Phil Andrew said the cost of not intervening would be greater than the cost of the recommendations it outlined.
StepChange estimated 2.8m people have fallen behind on their bills since the start of the coronavirus lockdown
'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', he said.
Polling of 3,796 adults carried out by StepChange at the end of May found 28 per cent had had their incomes hit by the virus, with this rising to 45 per cent for those in problem debt.
It estimated from the figures that 4.6million people financially affected by the virus were £6.1billion in the red, or £1,076 in arrears and £997 in debt each.
An estimated 5.3million people were concerned about their household finances being affected as a result of the virus, figures from the Office for National Statistics show.
Although figures from the Bank of England have found that Britons on the whole borrowed less in March and April and saw their credit card and other personal debts reduce as a result, there are concerns that people will soon need to turn to debt to get by.
A fifth of people surveyed by the DIY investment platform AJ Bell at the start of May said they had borrowed to pay for essentials and 30 per cent had dipped into their savings to do so.
The figures from StepChange appear to suggest the situation is getting worse for some parts of the country.
Their finances being affected was number three in the list of what people worried most about, according to a survey from the Office for National Statistics published last month
The charity said: 'A broad swathe of the population has been affected but those who are younger, female, are responsible for children, or in insecure work are most likely to have experienced a negative impact.'
It found 44 per cent of those hit financially who earned less than £30,000 have fallen behind on bills or borrowed to pay them.
StepChange called for a financial recovery strategy for households to be brought in, asking local councils to introduce repayment plans for those behind on their council tax, utility regulators to support those struggling to pay their bills, and for a £5billion fund to support those who have fallen through the cracks in other government support schemes.
It said the fund should be set up 'to provide grants to households negatively affected by coronavirus to repay arrears and debt accumulated to pay for essentials during the crisis.'
While the Government at the end of March announced a £500million fund to provide council tax relief to those affected, which could see those on low incomes given £150 off their bills, those who fall into arrears on their council tax could still face big problems.
This is because falling behind could see those in arrears asked to pay the rest of their annual council tax bill all at once, or else debt collectors could be involved.
According to a poll carried out in April by Citizens Advice, more people expected to fall behind on their council tax than any other bill
Citizens Advice recommend anyone in trouble with their bills speak to their council to ask if they can pay what they owe in smaller amounts.
Figures from the charity's own polling of more than 2,000 people in April estimate that more people expect to fall behind on their council tax than any other bill.
StepChange's call for affordable repayment plans for council tax arrears was backed by fellow debt charity the Money Advice Trust.
Its director of external affairs Jane Tully said: 'As StepChange rightly highlight, it is crucial that households receive ongoing protection from collection and enforcement activity on council tax and other bills as the government's temporary support measures begin to ease.
'On council tax, we are calling on the government to introduce a 'pre-action protocol' for councils to follow before they enforce council tax arrears.
'With millions at risk of falling behind with their bills, this would prevent a bad financial situation being made worse by heavy-handed debt collection practice.
'I would encourage anyone worried about their finances to seek free debt advice from a charity-run service as soon as possible.'
StepChange estimated an average of 4.6m people financially hit by the virus were £6.1bn in debt and arrears at the end of May. It described the figures as a personal debt tsunami
StepChange also called for the Financial Conduct Authority to extend payment holidays for unsecured debts like credit cards and personal loans for three more months, which the regulator is currently in talks with banks over.
Phil Andrew added: 'Like other debt charities, we are gearing up for a significant increase in demand for our usual services.
'We are also working on a specific solution to help people whose finances have been hit by the pandemic and who need a short-term helping hand to get back on track without jeopardising their credit status.
'The false calm in which we find ourselves while furlough and forbearance take the strain will not last indefinitely.
'We will be ready to help as more people find their debt problems crystallising over the coming months.'
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