The delayed impact of the debt crisis

In a recent opinion piece in the Guardian (16 December 2020), Phillip Inman and Patrick Collinson suggested that the greatest impact of debt forced onto families by Covid-19 would likely not be felt until 2022. Weighing up the delay on insolvency processes and the temporary impact of Covid support measures, they are right. Numbers of individual bankruptcies and ‘debt relief orders’ dramatically fell in 2020. Most debt advice centres are yet to see a new wave of clients to any great degree.

According to Inman and Collinson, the ‘great reckoning’ is still to come. We are yet to see the true impact of debt accrued because of Covid-19. But as bailiff action and evictions restart in England (as is currently expected to take place from 21st February) and some support schemes wind down  despite new lockdowns, the stark reality may soon begin to dawn.

We know that the impact of debt looks different for every family. But for many of the six million people behind on one or more household bill because of Covid, the likely picture is that debts continue to pile up as the immediate needs of safety, food and wellbeing are continually made harder by increased restrictions. With restricted incomes – whether through furlough or unemployment- already tightly balanced budgets are increasingly stretched. At present, no intervention has been offered to lighten the burden of debt already accrued because of events no one could have predicted. If this continues to be the case, Stepchange predict we could see as many as 2.87 million people at high risk of long-term debt problems.

But none of this is an inevitability. Whilst Inman and Collinson state with some certainty that we can expect the UK’s 2009 record of individual insolvencies to be ‘shattered’ by the coming crisis, they do not allow for the opportunities available to the Government to take urgent, and available, action. Arguably, current measures established to deal with problem debt are not capable of addressing the crisis at hand. Even the further measures of delay and advice offered through the ‘breathing space’ scheme do not go far enough.

In the midst of mass unemployment, economic recession and unpredictable public health restriction, the usual routes simply push the crisis down the road and leave families and communities unable to begin recovering from the pandemic. What’s more, whilst the debt burden is heaviest on those on the lowest incomes, it has begun to impact communities more broadly. Many families are facing problem debt for the first time, without means of escape.

The public and social costs of this are manifold. Financially, expanding debt advice and processing services to deal with a sharp increase in debt will undoubtedly be expensive. The return of bailiff action and eviction at the beginning of 2021 pushes the support needed for families in debt outside of financial and into social support, as many sit on the brink of homelessness and destitution. This does not stop at insolvency – processes such as Debt Relief Orders, Individual Voluntary Arrangements and even bankruptcy are deliberately designed to be difficult processes to go through. There are often large emotional and health consequences of these pathways through debt, especially for the children of those going through such experiences. The financial cost of the consequences of these actions may be measurable (and vast), but the human cost is certainly not – and arguably far greater.

If Inman and Collinson are right, and 2022 is likely to see one of the greatest personal debt crises we have encountered, then the Government must face the costly reality – a reality that is beginning now. This is not an inevitable outcome. Intervention now is more valuable than delay. Our call on the Government to Reset the Debt argues that the future value of transformative intervention now could be vast, not least for those whose day to day lives are coloured by the fear of debt. The payoff of action now could be a crucial building block in our collective road to recovery. Without it, whole communities could be held back for years to come.

The next three months are a crucial time for this conversation to take place, ahead of the next Budget at the end of March and as debt enforcement restarts. Whilst the last Spending Review did little to prioritise the needs of the most vulnerable, at home and overseas, the Budget has the chance to focus on measures to ensure everyone is able to move forward from this crisis. Our call on the Government to reset Covid-related household debt by creating a jubilee fund is part of this. By taking measures to include debt write-off as part of the solution to the rising household debt crisis, the Government could enable us to get to 2022 without facing the biggest individual debt crisis in recent history.

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