Near the cliff-edge: how to protect households facing debt during COVID-19
People in the UK are already experiencing the financial impact of Covid-19. An estimated 6 million people have fallen behind on a household bill due to Coronavirus and the policy response to limit its impact. Concerningly, 4 million have fallen behind on rent, council tax or a telecoms bill where they have little protection from aggressive debt collection when temporary protections on enforcement come to an end.
Policy change is needed now to prevent a financial cliff-edge, help people out of debt, and support the economic recovery.
Financial problems are linked closely to vulnerability to the virus and changes at work
Financial problems are widespread and people are falling behind on bills in every sector but they are more common for some people. People with a health condition that means they are in the ‘shielded’ group are 4 times as likely to have fallen behind on a bill compared to those who aren’t at increased risk from the virus, for instance.
Financial problems are also closely related to the way people work.
43% of people on zero hours contracts have fallen behind on a bill due to coronavirus compared to 16% of everyone in work.
The 37% of people who have seen their income fall are nearly 9 times as likely to have fallen behind on a bill compared to those who haven’t (25% v 3%)
People face a cliff edge when support comes to an end
The government, regulators, and firms have acted rapidly to protect people from the financial impact of coronavirus by pausing large parts of the economy. Across the housing sector, local authorities and essential services, short-term protections - pauses on enforcement, eviction, or repayment holidays- are in place to help prevent the most severe impact of debt.
Those protections aren’t working perfectly, but are working well. However, more needs to be done to provide protection from enforcement in the medium term and to help people repay debts built up due to coronavirus in a sustainable way.
Stop the cliff-edge, help people out of debt, and support the economic recovery
Policy makers need to take action to stop people being penalised for unavoidable debts. There is also a real risk that the mountain of personal debt built up during the lockdown could prove a drag on demand and slow down economic recovery. 4 specific changes would help:
In the private rented sector, the government should accelerate its policy to scrap section 21 ‘no-fault’ evictions. It should also temporarily revise ground 8 section 8 - another eviction mechanism, which is mandatory for rent arrears - of the Housing Act 1988 for 6-12 months to make it discretionary so renters can’t lose their homes due to Coronavirus.
MHCLG should instruct all councils to pause enforcement of council tax bills missed during the crisis for 6-12 months and offer a 3 month payment holiday to people in financial difficulty. Local authorities may need to access emergency funding to cover any lost council tax revenue as a result.
Ofcom should issue new guidance to instruct providers not to disconnect anyone or take enforcement action for debts built up due to Coronavirus for 6-12 months.
New mechanisms for agreeing affordable ways to repay debts need to be put in place, or improved, across sectors.
Medium term protections from enforcement and recovery and a sustainable way to repay debts built up due to Coronavirus will help individuals and the economy. For individuals, it will help prevent the most severe impacts of debt - such as being evicted - and the long-term damage debt can do to people’s life chances. For the economy, sustainable repayment plans will give people confidence, spread the cost of the lockdown, and help the recovery.
The financial impact of coronavirus is overwhelmingly concentrated on people who have health risks, on young people, and on people in insecure work. To support those groups out of debt, further measures are likely to be needed to help individuals who aren’t able to repay their debts and ensure the cost of missed payments is distributed fairly between consumers, providers, and the taxpayer.