How Do We Solve The Problem Of Problem Debt In The Wake Of Covid-19?

How Do We Solve The Problem Of Problem Debt In The Wake Of Covid-19?

Covid-19 has had profound implications for problem debt in Britain. Three-quarters of people who seek debt advice do so due to an income shock, typically caused by illness or redundancy. Low levels of financial resilience permeate the hospitality, services and retail sectors worst hit by the crisis, with these workers 25 per cent more likely to have no savings at all to fall back on.

In April 2020, amid the biggest-ever fall in consumer spending, UK households repaid a record £7.4bn of debt on credit cards and personal loans. Household bank deposits increased by £16.2bn, more than triple the average monthly rise. Yet this tells only half the story.  According to a study carried out by the charity StepChange, 4.6m households risked building up dangerous levels of debt during the pandemic. In late March, as many as 1.2m people had fallen behind on utility bill payments, and 820,000 people on council tax. Around 4.2m people had to borrow to make their regular payments, mostly by using a credit card, overdraft or a high-cost product such as a payday loan.

Following the publication of the CSJ report, Collecting Dust, which advocated a Debt Management Bill, the Cabinet Office also initiated a wide-ranging review of fairness in government debt management, suggesting that Ministers are intent on reforming outmoded debt collection practices which make household debt problems worse.

But are these measures enough? What needs to happen – in both the immediate and medium term – to solve the problem of problem debt in the wake of Covid-19?

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