LIFE IN PERSPECTIVE Supporting people through the cost-of-living crisis. ‘‘Working alongside creditors, the debt collection industry and the wider money and credit sector is also key in ensuring there are safe routes out of financial difficulty for the millions of people struggling.’’ Brave | Curious | Resilient / www.cicm.com / <strong>October</strong> <strong>2023</strong> / PAGE 28
DEBT ADVICE AUTHOR – Jane Tully HIGH prices and the impact they are having on UK households remain in the spotlight of Governments, regulators and the media. Stubbornly high inflation and rising interest rates, alongside the regular drumbeat of research highlighting the scale and breadth of financial difficulties continues to add to this focus. Our own research from June, based on UK wide polling, showed that 11.6 million (22 percent) UK adults were behind on one or more household bill, up from 7.9 million in March 2022. But what do these types of statistics tell us about the lives of people in debt? What does this mean for the day-to-day challenges faced by many households, and what is needed to help the millions of people struggling now? (56 percent) of all Business Debtline clients having a deficit budget (income not enough to cover essentials). It has been a perfect storm for small businesses. Many were still reeling from the financial effects of Covid when the cost-of-living crisis hit. Nearly a quarter (23 percent) of Business Debtline clients continue to cite ‘Coronavirus’ as the main reason for financial difficulty. It is these existing challenges, compounded by growing pressure from all areas, that are now taking their toll on our clients. More than half (57 percent) of Business Debtline clients and two thirds (66 percent) of National Debtline clients surveyed said they had gone without essential items like food, toiletries or clothing because they could not afford them. Trussell Trust, to ensure that Universal Credit and other benefits always provide enough to live on so people do not have to go without essentials. We need safe routes out of debt for the many millions of people who have fallen behind. The immediate introduction of measures to improve access to Debt Relief Orders (DROs) would be a good first step. DROs are a vital insolvency option, however many people face barriers accessing these, not least the £90 fee. The Department for Business and Trade should work with the Insolvency Service to provide ways of improving access to DROs. This should include reviewing the maximum debt limit, to ensure anyone who has little available income and minimum assets can access a DRO, as well as reviewing the rule that only allows a DRO once every six years. Debt landscape At National Debtline and Business Debtline the majority of people we help are on low incomes. The average household income of a National Debtline client is £20,566. Many were experiencing financial difficulty going into this period. Soaring energy bills, and rising food, fuel and other essential costs have made many difficult situations worse. Since 2017, the average amount of priority debt (including council tax, energy and rent arrears) held by our clients increased by 54 percent from £2,642 in 2017 to £4,080 in 2022. This growing debt burden, and the challenges it brings, extends across all debt areas. Credit card arrears remains one of the most common debts for our clients. We have also seen the average amount owed on personal loans increase by a fifth (21 percent) – from £7,915 in 2021 to £9,548 in 2022. The average amount owed for buy-now pay-later debts has also risen significantly, from £380 in 2021 to £556 in 2022, a rise of 46 percent. A key driver of these increases is that incomes for the people we help can’t keep pace with rising prices. Two in five National Debtline clients do not have enough coming in to cover their essential costs, and this gap in our clients’ finances is widening. Last year the average budget shortfall was -£393, up from -£308 the year before. The personal impact These difficulties extend beyond personal finances and into those of the small businesses we help, with more than half A key driver of these increases is that incomes for the people we help can’t keep pace with rising prices. Two in five National Debtline clients do not have enough coming in to cover their essential costs, and this gap in our clients’ finances is widening. Many of our clients are turning to credit to plug gaps in their budgets. A third (32 percent) of National Debtline and Business Debtline (31 percent) clients surveyed reported using credit to cover essentials like energy or council tax. As costs remain high, debts are mounting, and with interest rates set to rise further and prices remaining high there is little respite in sight. Complex case In most cases, the situation for our clients is complex. There are often multiple debts involved, which combine with the worry, anxiety, fear and embarrassment brought about by being in debt. A major driver of debt problems is simply not having enough coming in to afford the basics. We are calling on the Government to adopt an Essential Guarantee, proposed by the Joseph Rowntree Foundation and the There is also much more work needed to improve the ways government, both central and local, collects debts, particularly the rate at which deductions are taken, such as benefit overpayments. And for specific debts, such as energy arrears brought about by soaring energy prices, more tailored support is still needed. These recommendations are, however, just a starting point. Access to free, independent debt advice continues to play an important role in supporting the hardest hit. Working alongside creditors, the debt collection industry and the wider money and credit sector is also key in ensuring there are safe routes out of financial difficulty for the millions of people struggling. Jane Tully is Director of External Affairs and Partnerships at the Money Advice Trust. Brave | Curious | Resilient / www.cicm.com / <strong>October</strong> <strong>2023</strong> / PAGE 29
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