Britain facing a £6bn ‘debt tsunami’ as a result of the coronavirus crisis

Britain is facing a £6bn “debt tsunami” as a result of the coronavirus crisis, a leading debt charity has warned.

A briefing published by StepChange reveals that there is already £6bn of personal debt directly attributable to the pandemic among around 4.6m households and it predicts that it is set to worsen if left unchecked.

The charity warns that coronavirus-related debt will act as a drag on economic recovery and will deluge advice services once the reality of people’s situations begins to hit home in the coming months.

Debt charities are gearing up for a doubling in demand for debt advice by the end of the year, is says.

The charity commissioned research by YouGov to find out the level of personal debt being experienced across the country.

Based on the YouGov survey of 3,796 adults, it estimates that those affected had accumulated an additional £1,076 of arrears and £997 of debt by late May.

Since the beginning of the coronavirus lockdown period, StepChange estimates 1.2m people have fallen behind on their utility bills, 820,000 people on their council tax, and 590,000 on their rent.

It calculates that 4.2m people have borrowed to make ends meet, most often using a credit card, an overdraft or a high cost credit product.

While 70 per cent of those affected were not in financial difficulty before lockdown, households who were already struggling before the pandemic have seen their finances hit disproportionately hard.

Of those in severe problem debt before the outbreak, 45 per cent have been negatively affected financially by coronavirus. This compares to 25 per cent of those not in financial difficulty.

Without mitigation, the situation for both groups will get even worse once job support and temporary forbearance measures are withdrawn, the charity warns. 

StepChange has set out three key recommendations to lessen the effect of this debt problem.

It is calling for a tapered rather than a sudden drop-off of support and repayment breaks in areas such as rent, credit repayments and council tax.

It also wants to see a central fund of at least £5bn set up for those who have fallen behind in payments or got into debt as a result of the crisis and a reform of Universal Credit to drop the five-week wait and no repayment of advances.

In addition to the three recommendations, it identifies other useful steps, such as making sure that bailiff visits do not restart prematurely and that debt charity imposters are prevented from scamming vulnerable consumers at a time when more people than usual may be searching online for help.

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.

“As a charity, we have our own part to play. 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.

by Jenni Davidson

Society & Welfare

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“We will be ready to help as more people find their debt problems crystallising over the coming months.”

Citizens Advice Scotland spokesperson Myles Fitt said: “Even before COVID-19, personal debt was one of the most significant issues we were seeing in the Citizens Advice network across Scotland, and the economic fallout from the pandemic risks pushing more people into debt or deeper into debt.

“What we need to see as part of the economic recovery is creditors freezing interest on debt during payment holidays, creditors supporting people to make affordable repayments to their debts, accessible benefits and grants that help increase incomes, and debt write-off where people are very unlikely to financially recover.”