Posted March 30, 2021
In this blog post our Chief Executive, Joanna Elson, outlines findings from our latest report, The cost of Covid which looks at the impact of Coronavirus on household finances.
When the Covid-19 outbreak first began over a year ago, few of us could have imagined the impact it would have on all our lives. It is clear that this is not only a health crisis but a financial one – leaving many households with missed bills, greater borrowing and, for those caught at the sharp end, difficulty in making ends meet. Despite the extraordinary (and welcome) government support packages, the upheaval of the last twelve months has impacted on the finances of many households as people have lost jobs, income, and livelihoods.
Our new research, The cost of Covid: exploring the impact of Coronavirus on household finances shows a third of adults in Britain (31%) report being financially worse off as a direct result of the pandemic. We estimate close to 5.5 million adults in Great Britain, or 11% of the population, are behind with one or more household bill or personal credit commitment due to Covid-19. For many, the impact has extended beyond just the financial - 17% of adults report losing sleep because of financial worries caused by Covid.
This is the personal cost of a pandemic, and at National Debtline and Business Debtline we support the people at the hard edge of these statistics. Our advisers on the frontline help the people behind these numbers day in, day out.
A year of income shocks
The scale of the economic strain brought about by Covid-19 has resulted in a significant increase in the unemployment rate. We have seen this first-hand at National Debtline, with a sharp increase in the proportion of callers telling us that one of their main reasons for financial difficulty is because they have lost their job or experienced an income shock, such as reduced hours.
For many people in self-employment and running small businesses the impact has been significant and sustained. The overnight drop in income that many experienced last April, has turned into ongoing volatility in trade, leaving them unsure of what to expect for the future. It is not surprising that the outbreak of Covid-19 has been so financially tough for the people we help at Business Debtline. The self-employed people we see typically earn less on average than their employee counterparts, their wages increase at a slower rate and they do not enjoy the same benefits and protections as the employee workforce.
A year of uncertainty and anxiety
Covid-19 has also catapulted some people into problem debt for the first time. In the last year we have heard from people who in other circumstances would not have needed our help. Understandably many people will still be processing the full extent of their problems, trying to gauge how long the situation is likely to last and whether they need advice. For others, the pandemic is exacerbating existing problems. Even without the impact of Covid-19, many people juggle unsustainable finances for some time before they seek advice, often as they come to terms with the fact that their situations are no longer manageable, and in the hope that things will improve.
Regardless of the stage and degree of debt, many people understandably suffer from feelings of anxiety and worry as a result. Our research shows that the pandemic has had a negative impact on people’s mental health – a quarter (25%) say it has adversely affected them, increasing to 46% amongst those who are unemployed.
A year of stretched budgets for many
The anxiety over accruing debt on essential household bills can lead to some making the difficult decision to use credit to cover bills that they would otherwise be unable to repay. 12% of adults in Great Britain – an estimated 6.2 million people – have had to use credit to pay for essential household bills or goods since the pandemic began. The most common use of credit for essentials was to pay for food and groceries (6%), an estimated 3.2 million people. The need to put everyday items on credit is a clear indicator of strained household finances and is rarely sustainable in the long run.
Helping people recover from the financial impact
Support measures from government, regulators and industry has undoubtedly made a significant difference to many people and has helped prevent or delay the most serious financial impacts for some. As restrictions lift, the hope is that we can begin a slow return to some form of normality, and that people’s financial situations recover. However, the reality for many who have been financially impacted by the outbreak, is that the resulting debt burden will be with them for many years to come. As we emerge from the crisis, there needs to be coordinated action by government, regulators, and industry to help people get out of debt and back on a stable financial footing.
This needs to include fairer and more affordable approach to collecting debts owed to central and local government including through a new Government Debt Management Bill to reform debt collection practices. Specific help for renters is needed to help those who have fallen into debt as a result of the pandemic. This could be done through no-interest loans and grants to clear rent arrears. A dedicated Covid-19 Self-employment Recovery Strategy is also needed for the self-employed, and a discretionary grant scheme to support owner-directors who remain excluded from the government’s support measures.
We and other debt advice charities will continue to do all we can to help those in financial difficulty. However, we cannot do this alone and more action is needed to prevent problem debt becoming one of the pandemic’s lasting legacies.
You can read or full report at www.moneyadvicetrust.org/cost-of-covid
Joanna is chief executive of the Money Advice Trust. Previously, she was Executive Director at the British Bankers' Association and a Parliamentary researcher and prior to that, a primary school teacher. She has a CBE for services to people in debt. View all posts from Joanna Elson.