Thursday, November 12, 2020

Debts Rise for the Poor

 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.

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.

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.”

Phil Andrew, the debt charity Stepchange chief executive, said: “This report paints a picture of a nation sleepwalking into a debt crisis..." Andrew said: “This winter, a second national lockdown will drive unemployment, reduced hours and rising energy bills... there is a real danger of lasting economic and social damage that will deepen inequality..."

Official figures showthe number of people made redundant rising steeply, and many 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.

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