Why a coordinated response is vital to support those hit hardest by the pandemic

by Vicky Fobel, Public Affairs and Campaign Manager

Coronavirus is having a profound impact on household finances. Our autumn report is full of evidence that a personal debt crisis is hitting financially vulnerable households and is likely to worsen over the coming months:

• The number of people who are in severe problem debt because of coronavirus has almost doubled since the beginning of the outbreak to 1.2 million people.
• We estimate that the amount of arrears and borrowing among those who have fallen behind on essentials or borrowed to make ends meet because of the impact of coronavirus is now £10.3 billion.

We know that many of those affected were just-about managing before the crisis, but government restrictions to tackle the pandemic has tipped them over the edge.

Nearly a fifth of people impacted by coronavirus have experienced serious hardship since March, including going without meals and rationing basic utilities.

That includes families with young children as well as young adults just starting out, both groups who were more likely to be in a financially vulnerable category prior to the onset of the pandemic.

What’s worse, with continuing restrictions and unemployment rising, more people will experience income shocks.

As the prospects of a quick recovery diminish, those now experiencing financial crisis do not yet have a safe pathway through the economic crisis.

We’re clear that the situation now demands a co-ordinated, preventative approach. We commend the action taken by government and regulators to support jobs and give people breaks in payment obligations in the short term.

Now the challenge is to develop longer-term plans to enable the people hit hardest by this crisis to recover from the financial shock and move forward in a way that is safe and sustainable.

Not doing so will have significant social costs and will undermine economic recovery. It will also exacerbate inequalities and jeopardise the government’s ‘levelling up’ agenda.

That’s why Stepchange is calling for a coordinated response to the coronavirus debt crisis, including protection against evictions and enforcement action like use of bailiffs.

We also need to see a more effective income safety net put in place and recovery funding provided to support people struggling with financial difficulty to address arrears and debt safely, to include interest free loans with repayment delayed until income recovers.

These measures would help people struggling with unmanageable arrears related to coronavirus and to provide an alternative to further desperation borrowing.

Repayment of loans should be delayed until incomes recover. For those whose incomes don’t bounce back, debts could ultimately be written off, drawing a line under the pandemic.

It’s similar to the way we help students pay for university fees and is a fair way to handle an economic crisis of this magnitude.

The measures would support the people least able to cope with the income shock dealt them and help them to get back on their feet, allowing them to exit safely from Coronavirus debt before they get stuck in a spiral of debt and the many related problems that come with it.

It will reduce the hardship and damaging impact of long-term debt on health, mental health and the economy and will counter the impact of coronavirus on inequality.

It will also help the economy recover, reducing the drag of coronavirus debt on productivity and spending and providing much-needed economic stimulus.

From families with children and young adults trying to make their way in the world, there are millions who are struggling to put food on the table and pay the rent.

The economic recovery must include a focus on helping the most financially vulnerable to get through this crisis unburdened by problem debt.

Find out more about our proposals for tackling the coronavirus personal debt crisis.