30 Mar 2021 | Posted In Money advice news

One in five adults in Britain (20 percent), equating to an estimated 10.2 million people, say they are worried their finances will not fully recover from the impact of Covid-19, according to new research from the Money Advice Trust.

The research, based on a poll of more than 2,000 adults conducted online by YouGov, and insight from the charity’s National Debtline and Business Debtline services, found that one in eight adults (12 percent) have had to use credit to pay for essential household bills or goods, including groceries, energy bills and council tax, since the Coroanvirus pandemic began. This equates to an estimated 6.2 million people.

One year on from the start of the first lockdown, these findings confirm that the financial effects of the pandemic have been felt far from equally. While a quarter of people (27 percent) say they are better off financially as a result of Covid-19, almost a third (31 percent) say they are worse off.

In the charity’s new report, ‘The cost of Covid’, the Money Advice Trust outlines the experiences of people whose finances have been hit hardest by the pandemic. This includes concerns around what will happen to households already struggling when emergency support measures are lifted later in the year.

While the financial situation of many would have been far worse were it not for the support put in place by government, regulators and creditors, the charity is calling for coordinated action to provide safe routes out of debt in the wake of Covid-19.

Relying on credit to plug gaps

While some people have seen their finances and ability to save improve over the past year, for others the burden of debt continues to increase as they struggle to make ends meet. One in nine (11 percent) adults say they are behind on one or more essential household bill or personal credit commitment as a result of the pandemic.

Many are relying on credit to plug gaps in their finances – one in eight (12 percent) say they had to use credit to pay for essential household bills or goods, with groceries, utility bills, and council tax the most common. Worryingly, of those people using credit to pay for essential costs, just over a third (37 percent) had used high-cost credit*, including one in nine (11 percent) using buy-now-pay-later schemes. An estimated 655,000 (1 percent) have had to use credit to pay for essential items (excluding groceries) for their child.

Job loss and income shocks driving debt problems

One of the key factors affecting many people struggling as a result of the pandemic has been income uncertainty. Job loss and income shocks have been common reasons for financial difficulty cited by people contacting National Debtline. The proportion of unemployed callers to National Debtline rose from 34 percent last March to 42 percent by December – while the proportion of callers in full-time employment fell from 39 percent to 32 percent.

A long road to recovery

With one in five adults (20 percent – an estimated 10.2 million people) worried their finances will never fully recover from the outbreak, the charity fears it could be a long road to recovery for many, including self-employed people and small business owners. Earlier findings from the charity show that nearly four in ten self-employed people (37 percent) expect it to be more than a year before their business income returns to pre-Covid levels – while nine percent do not expect this at all.

Without a clear roadmap out of debt for people struggling as a result of the outbreak, millions are likely to be left living with the financial consequences of the outbreak far beyond the lifting of lockdown restrictions.

The charity says that while it will continue to do all it can to help those in financial difficulty through its services, there needs to be coordinated action by government, regulators and industry to help people get out of debt safely and back onto a stable financial footing. Measures the charity is calling for include:

  • A fairer and more affordable approach to collecting debts owed to central and local government in the wake of Covid-19, including through a new Government Debt Management Bill to reform debt collection practices.
  • Specific help for renters who have fallen into debt as a result of the pandemic, in the form of no-interest loans and grants to clear rent arrears.
  • A dedicated Covid-19 Self-employment Recovery Strategy, and a discretionary grant scheme to support owner-directors who remain excluded from the government’s support measures.

Joanna Elson CBE, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said:

“A year on from when the Covid-19 outbreak began, the finances of millions of households have been turned upside down, with the effects not felt equally. While some people have found themselves able to save more, others have fallen into financial difficulty – with many struggling to cover food and energy costs.

“It is clear that this is not just a health crisis but a financial one, too. Our findings suggest more than 10 million people are worried their finances will not recover, with more than 5 million already behind on bills – and this is only likely to increase. Without coordinated action now to help people get back on a stable financial footing, there is a danger of problem debt becoming one the pandemic’s many lasting legacies.

“Support measures put in place by government, regulators and creditors have undoubtedly helped ease the financial pressures on many households, however, without a clear roadmap out of debt, for millions of people these challenges are set to continue long after lockdown measures ease.”