Debt ‘roadmap’ urgently needed for the 1 in 3 adults financially worse off as a direct result of Covid-19

Money Advice Trust calls for action as polling also finds that more than 6 million people have had to use credit to pay for essential costs such as groceries, utility bills, and council tax

The Money Advice Trust (MAT) has called for the government, firms and regulators to work together to create a ‘roadmap out of debt’ for the one in three adults reporting that they are financially worse off as a direct result of Covid-19.

In a new report, The Cost of Covid, the MAT sets out findings from a poll of more than 2,000 adults conducted online by YouGov and insight from the charity’s National Debtline and Business Debtline services.

However, the charity highlights that while some people have seen their finances improve over the past year, for others the burden of debt continues to increase as they struggle to make ends meet. For example, despite a recent focus on some growth in savings and evidence of higher-income households paying down debts through the pandemic, the MAT says that these changes mask a worrying increase in borrowing, most notably among lower-income households -

• over the course of 2020, nearly 9 million people had to borrow more money than usual, with the proportion borrowing more than £1,000 since June 2020 increasing from 34.7 per cent to 45.1 per cent;
• around a third of adults (31 per cent) report being financially worse off as a direct result of the pandemic, rising to 58 per cent for those who are unemployed;
• almost 5.5 million adults in Great Britain, or 11 per cent of the population, are behind with one or more household bills or personal credit commitments due to Covid-19 impacts;
• 12 per cent of adults (more than 6.2 million people) have had to use credit to pay for essential household bills or goods since the pandemic began, and of these 37 per cent have used at least one type of high-cost credit to pay for essentials.

In addition, the MAT says that one in five adults (an estimated 10.2 million people) are worried their finances will never fully recover from the pandemic, and that almost one in four (37 per cent) of the self-employed and small business owners expect it to be more than a year before their business income returns to pre-Covid levels.

As a result, the MAT calls for coordinated action by the government, regulators and the credit industry to help people get out of debt safely. Among the charity’s key recommendations are that -

• government, firms and regulators - such as the Financial Conduct Authority, Ofgem, Ofwat and Ofcom - continue to work together to ensure there is a consistent approach to supporting people facing ongoing financial difficulty and uncertainty, including by offering suitable forbearance, agreeing to affordable repayment plans and referring to debt advice where needed;
• the government ensures it is taking a fair and affordable approach to collecting debts owed to it post-Covid by urgently reforming government debt collection practices - this should include implementing a Government Debt Management Bill to embed principles of affordability and fairness throughout all government debt collection, and taking action on the advice sector’s long-running calls for bailiff reform;
• the Ministry of Housing, Communities and Local Government ensures that people with council tax arrears are treated fairly by reforming outdated council tax collection rules;
• HM Treasury continues its work to bring forward the new Statutory Debt Repayment Plan scheme as soon as possible, to ensure that those repaying their debts in full receive protection from creditor collection and enforcement activity, and from having additional interest, fees and charges added to their debts; and
• the government helps renters who have fallen into arrears due to the pandemic by providing no-interest loans and grants to clear arrears, continuing protections against evictions until the pandemic eases and implementing longer-term reform of Section 21 eviction.

In addition, the charity makes specific recommendations to help the self-employed out of debt, including creating a dedicated Covid-19 Self-employment Recovery Strategy to identify and deliver longer-term measures such as training and advice needed to secure the financial and economic recovery of the sector as a whole; introducing a discretionary grant scheme specifically to support those still excluded from the Self-employment Income Support Scheme; and ensuring there is a fair and affordable approach to recovering government-backed coronavirus business loans and outstanding tax debts.

Chief executive of the Money Advice Trust Joanna Elson said today -

‘A year on from when the Covid-19 outbreak began, the finances of millions of households have been turned upside down, with the effects not felt equally. While some people have found themselves able to save more, others have fallen into financial difficulty - with many struggling to cover food and energy costs.

It is clear that this is not just a health crisis but a financial one, too. Our findings suggest more than 10 million people are worried their finances will not recover, with more than 5 million already behind on bills - and this is only likely to increase. Without coordinated action now to help people get back on a stable financial footing, there is a danger of problem debt becoming one of the pandemic’s many lasting legacies.

Support measures put in place by government, regulators and creditors have undoubtedly helped ease the financial pressures on many households, however, without a clear roadmap out of debt, for millions of people these challenges are set to continue long after lockdown measures ease.’

For more information, see Britons worry finances will not recover as households count cost of Covid one year on.