Covid money problems spark 'unprecedented' debt crisis

Levels of household borrowing and arrears attributable to coronavirus have soared to £10.3bn since the start of the pandemic, sparking a "new and unprecedented" debt crisis, a charity has warned.

Coronavirus-related debt is on the rise.
Coronavirus-related debt is on the rise.

The number of people affected by Covid who are in severe problem debt has risen to 1.2m – nearly doubling since March – with a further 3 million at risk of falling into serious financial problems, according to StepChange’s report, Tackling the Coronavirus Personal Debt Crisis. The study found that debt has increased by £4.3bn or 66 per cent since May.

The results of the poll show 14.9 million people - 29 per cent 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.

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Meanwhile, 17 per cent of those whose financial situation has been negatively impacted have experienced one or more indicator 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.

Ellie Merton, from Edinburgh, lost all of her work when the coronavirus lockdown hit.

Since March, 25 to 34-year-olds have been most at risk of both falling behind on essential bills and borrowing to make ends meet, and of experiencing one or more forms of hardship, while families with dependent children—particularly single parents— have been squeezed by falls in income and additional childcare costs.

StepChange warned that the safety nets in place for those affected by coronavirus are not proving effective and has called on the government to take action to tackle the problem. Of those who have made an application for Universal Credit since March, 24 per cent are in severe problem debt and 28 per cent are showing signs of financial difficulty.

Phil Andrew, chief executive 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.”

He added: “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.”

StepChange is calling for targeted government funding to help households struggling financially due to Covid. The funding would pay for interest-free loans, with re-payment contingent on income, to help struggling households address Covid-related arrears and debt safely.

Andrew Bartlett, chief executive of Advice Direct Scotland - which runs the national advice service advice.scot – said: “The coronavirus pandemic has plunged many people in Scotland into financial hardship.

“And with ongoing restrictions and economic uncertainty, it remains a very worrying time for people. But around half a million people across Scotland are not claiming the financial support they are entitled to. Our specialist debt advisers are working with people to assess their current situation and are on hand to help people through any situation by providing free, impartial advice.”

Emma Jackson, national director of debt advice charity Christians Against Poverty (CAP), said: “We know so many people are suffering financially because of the impact the pandemic has had on jobs and employment. Many families are experiencing problem debt for the first time. We want people who are struggling to know CAP is here and ready to help them.”

Theatre producer and film extra Ellie Merton from Edinburgh believes she contracted coronavirus in the first week of March before lockdown, when she was working on a film set in England. When lockdown hit, her work dried up overnight and her debts ballooned from £5,000 to £13,000 in four months.

Ms Merton, 51, now suffers from long covid and has been largely unable to work since March. She contacted CAP for debt advice help and now works with an adviser to manage her financial problems.

She said: “When lockdown hit, I slipped through the cracks in terms of support as I had only been self employed for a year. I didn’t earn a huge amount, but a little bit here and there, which was enough to pay for all of the regular things. Then from the second week in March, all of my work vaporised. I also rented out my spare room occasionally as an AirBnB and that disappeared too. I applied for Universal Credit on 18 March. Now I am in a position where last week, I had to think about taking up the offer of food bank vouchers."

After a spate of ill health four years ago, when she took two years to recover from breast cancer, Ms Merton had already eaten through any savings she had.

She said: "I had got everything going in 2019, I was working as an extra and had a job producing a play at the Fringe. Everything was going really well. My health had picked up and I was really back on form. Then covid happened. I spent from March to July running up massive credit card debts. Then in July, when I still had long covid and I couldn’t work, I realised the direction it was going and I phoned the banks and credit card companies and said ‘We need to come to some kind of arrangement’. But they just looked and said ‘You’re not in arrears, why are you phoning us?’ Eventually, they agreed to a three month payment holiday. I had to use my credit cards to live off.”

Still suffering from debilitating symptoms, Ms Merton tried to take some secretarial work, but despite having worked in the field for more than 20 years, she found the virus had affected her memory and she was unable to focus on typing. She has since worked for two days as a film extra, which affected her benefits payments.

She said: "I have been desperately trying to find work that I can do – I hate this idea that I am leeching off society. Before this happened, I had £5,000 on a credit card and a sofa loan, no different to what a lot of people had. Now I am in arrears to everything. I am a perfect example of someone who was just two lost pay checks away from poverty – like so many people in this country are.”

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