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Coronavirus-related household debt passes £10bn

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Household borrowing and arrears due to coronavirus have soared to £10.3bn since the start of the pandemic, a charity report reveals.

This figure is up £4.3bn (66%) since May, according to research from charity StepChange.

Its Tackling the coronavirus personal debt crisis report also revealed that the number of people affected by Covid who are in severe problem debt has risen to 1.2 million, nearly doubling since March. A further three million are also at risk.

StepChange also said around 14.9 million people – nearly a third of the adult population – have experienced a negative change of circumstance due to Covid-19, such as unemployment or redundancy, or furlough with a reduction in salary.

Among this group, 7.1 million have fallen behind on essentials or borrowed to make ends meet, averaging £1,365 arrears and £1,577 in debt per adult affected.

StepChange said that the safety nets in place for those affected by coronavirus are not “proving effective”.

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.

Meanwhile, 17% of those whose financial situation has been negatively impacted have experienced one or more indicators of hardship since March, including having had fewer than two meals a day for two or more days and having rationed or gone without basic utilities (such as electricity, heating or water) for five or more days.

The report also reveals that 25-34-year-olds have been most at risk of both falling behind on essential bills and borrowing, and of experiencing one or more forms of hardship. Families with dependant children – particularly single parents – have been squeezed by falls in income and additional childcare costs.

StepChange also found twice as many people with an income between £10,000 and £20,000 have fallen behind or borrowed money compared to those with an income between £50,000 and £60,000.

As a result, it is now calling on the government to urgently develop plans to help families facing a debt crisis. It has come up with these three points:

  • Extend eviction and insolvency protections as well as suspend bailiff collections activity
  • Interest-free loans with repayment contingent income
  • Expand local emergency support to ensure households have sufficient income as well as maintaining the Universal Credit £1,000 a year uplift

‘Nation sleep-walking into a debt crisis’

Phil Andrew, CEO of StepChange, said: “This report paints a picture of a nation sleep-walking 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.

“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.

“Strengthening short-term protections like furlough will buy time for those experiencing temporary financial difficulty. Now we need to see the Government provide targeted funding that can enable households to exit safely from coronavirus debt. Concentrating support in this way can reduce the hardship and damaging impact of long-term debt on health, mental health and the economy, as well as countering the impact of coronavirus on inequality.”

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