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Coronavirus: UK 'sleepwalking' into long-term debt crisis

·3-min read
An elderly man holds an empty purse. The concept of poverty in retirement .
Some 14.9 million people — 29% of the UK’s adult population — have seen a negative change of circumstance due to the pandemic, according to a new report. Photo: Getty

Debt charity StepChange has warned that a “new long-term household debt crisis inevitable without urgent intervention,” with levels of UK coronavirus-related household debt hitting £10.3bn ($13.6bn).

UK household borrowing and debt has increased by £4.3bn since May — a rise of 66% — according to StepChange.

The number of Brits who are in severe problem debt has nearly doubled since March, rising to 1.2 million, with a further 3 million people at risk, the charity found in a new report.

Some 14.9 million people — 29% of the UK’s adult population — have seen a negative change of circumstance due to the pandemic, such as unemployment or redundancy, or have been furloughed through the government’s Job Retention Scheme with a reduction in salary. Of these, 7.1 million have fallen behind on essentials or borrowed to make ends meet, with Brits owing an average £1,365 in arrears and £1,577 in debt per adult affected.

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.

READ MORE: Parents hit hardest by lockdown energy costs in UK

Some people whose financial situation has been hit by COVID-19 have been unable to afford basic necessities 17% reporting hardships 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.

More than 3 million people negatively affected by the coronavirus have fallen behind on essential bills such as council tax, rent and utilities.

Financially vulnerable groups, such as younger people aged between 25 and 34, families with dependent children — particularly single parents — and those with lower household income have been most at risk of both falling behind on essential bills and borrowing to make ends meet.

StepChange is calling on the government and regulators to extend and strengthen protections for people experiencing financial difficulty during the pandemic including extending the government’s council tax fund and suspending bailiff collections activity.

READ MORE: Parents in the UK hit by coronavirus poverty as '40% forced to cut maternity leave’

The charity is also urging the government to provide targeted funding to help struggling households and expand local emergency support to ensure households have enough money to make ends meet.

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.

READ MORE: Coronavirus: 17.5 million single Brits under more financial pressure

“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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