By Karen Rowlingson, Professor of Social Policy
Department of Social Policy Sociology & Criminology, Centre on Household Assets and Savings Management, University of Birmingham
Even before the current COVID-19 crisis hit, research by the University of Birmingham showed that 3 million people in the UK were behind with key bills such as: gas, electric, water, rent, mortgage or council tax. Problem debt was particularly widespread among those on lowest incomes with six in ten of those in the poorest fifth of the population reporting that they were in arrears. The current crisis is likely to see even more people getting into debt and those already in debt, falling deeper in. While the government has taken unprecedented action in the last week, it is nowhere near enough to avoid a future debt explosion. More government action is needed, urgently, for example to support: people with rent and council tax payments; those in debt; the self-employed and those laid off or on reduced hours; and families with children. Debt advice agencies are also coming under huge strain and need additional resource from government.
More support for rent and council tax payments needed
Those having difficulty paying mortgages have already seen the introduction of a 3-month payment holiday scheme (though the unpaid interest will have to be paid at a later date). By contrast, those struggling with paying rent have received relatively little help. Some renters will receive a small increase in their Local Housing Allowance and the government had announced that ‘no renter who lost income will be forced out of their home’. But subsequent legislation appears to fall far short of this bar, only extending the period of notice needed to evict someone from 2 to 3 months.
So those struggling with mortgages will be able to access a 3-month payment holiday while those struggling with rent will just be granted a small increase in rent support and an extra month to pack their bags before eviction.
Urgent government action is therefore needed through a much wider range of support for renters, including through housing benefits.
Local authorities, housing associations and landlords should also be supported to offer payment holidays – for example on rent and council tax – to those who need it, funded by central government.
More direct cash support to households needed
As Stepchange debt charity and the Money Advice Trust have recently called for, the government needs to get direct cash support to households as quickly as possible, sufficient to replace the income lost as a result of the Covid-19 crisis. This could be done through direct cash grant payments to affected households, ensuring that universal credit advances are made available as grants and expansions of available hardship funds. The basic level of universal credit also needs further increase. It has never been sufficient to avoid poverty and this needs to change urgently to avoid increasing levels of debt.
There should be a particular focus on those who have already seen their income fall, such as the self-employed and those in insecure work or who have been temporarily laid off or seen their hours cut. While the Resolution Foundation have rightly welcomed the Government’s unprecedented package of support, including paying 80 per cent of the wages of employees who currently have no work, via its Coronavirus Job Retention Scheme, they call for much more action, not least to replicate the Job Retention Scheme via a new Coronavirus Compensation Scheme, both for the self-employed and employees losing their jobs. They argue that it is particularly important to include those whose working hours are cut, so that those who are still able to do some work retain strong incentives to do so. At the same time, the details of the retention scheme are critically important, by making sure firms can use it to cover workers who are off sick, thereby addressing problems with the coverage and generosity of Statutory Sick Pay.
Families with children also need urgent support. For example, in light of extended school closures, the Child Poverty Action Group have called for an urgent increase in child benefit of at least £10 per week per child (with the benefit cap being lifted to ensure all families gain).
And while we could reform the current system to respond better to the crisis, we could also consider more fundamental change, such as a universal basic income, either as an emergency measure to provide security for all during this time of crisis or as a permanent reform to tackle broader issues of economic insecurity.
More support for those in debt through a pause in collection and enforcement
Even with more government action, it is likely that more people will get (deeper) into debt. It is therefore critical that government, regulators and providers should work together to ensure people who fall behind on essential bills and credit commitments are protected, with immediate pauses on all forms of collection and enforcement activity, including deductions from benefits to repay debt.
Debt charities need more resource to support clients
The impact of the crisis has already been felt by debt charities. The Citizens Advice website has seen its busiest week in history, with over 2.2 million views. Their web data also shows a clear picture of the changing nature of how this crisis is affecting people in the UK. Initially, in early March, the charity saw an increase in people coming to them for information on flight and accommodation cancellations. Then came a big rise in views of its new, dedicated page on COVID-19, and advice pages related to sick pay. As of 24th March, there was an increase in pages relating to redundancy, benefits pages relating to income and Universal Credit and what to do if you can’t afford to top up your electricity prepayment meter.
It is perhaps worth noting that Citizens Advice was founded on 4th September 1939 – the day after World War II was declared. While today’s crisis is very different in many ways, the scale of the issues facing us – both in terms of health and wellbeing more generally – is immense. At such a time of crisis, the government needs to ensure that vital services such as Citizens Advice, the Money Advice Trust and Stepchange Debt Charity have the resources they need to provide the essential phone, email and web chat support required.
Further support and advice
Anyone worried about the impacts of coronavirus on their finances can get instant information and signposting to further help at www.stepchange.org/coronavirus and through https://www.citizensadvice.org.uk/