I beg to move,
That this House
has considered the effect of the covid-19 outbreak on household debt.
It is a pleasure to serve under your chairmanship, Mr Bone. The effects of covid-19 have been uniquely lopsided. We hear a lot about people making savings during lockdown; the Bank of England apparently estimates that at £150 billion overall and says that many people are able to pay off debt using income they have saved. That is all very well, but it glosses over the at least 11 million people—perhaps the most vulnerable in society—whose debt has increased because of covid-19. That is 11 million people who, by March 2021 according to StepChange, had built up £25 billion in arrears and debt to pay.
About 4.3 million people are now behind on bills such as council tax, rent or fuel, and the average debt is higher too. According to independent polling, 14 million people have suffered an income shock over the course of the pandemic, with almost half of those people turning to crisis borrowing to cover essential expenditure. The Money and Pension Service found that 9 million people have had to borrow money in the last year to buy food and to pay essential bills—whether via credit cards, overdrafts or, if they are very lucky, family and friends. According to Standard Life, one in 10 of all households were facing serious financial difficulty, with the majority in arrears on at least one bill.
Loss of income is, of course, at the heart of the increase in debt. StepChange says that more than 19 million adults experienced some loss of income during the pandemic. The package of help from the Government has been a lifeline for so many in crisis, because of lost incomes and loss of jobs. However, welcome as they are, in many ways they are going to simply delay the inevitable because they are expiring or due to expire in September. When the various schemes come to an end, we can only expect the situation to get worse. Some advice agencies are talking about a tsunami of debt. It is a highly dramatic image, but maybe not far from the truth.
We like to think that covid-19 has been a great leveller—that we are all in it together—but the fact is that the increased debt burden has had a disproportionate impact on the least well off and most vulnerable in society. The Institute for Fiscal Studies has found that the poorest 20% of the population saw a decline of £170 per month in their savings during the pandemic, while research from Citizens Advice showed that young people, people with dependent children, black, Asian and minority ethnic people, disabled people and renters were far more at risk of falling behind on essential bills such as council tax repayments. People living in places with average earnings lower than £28,000 a year—such as my own constituency in the Wigan borough, where average earnings are just over £18,000—are, according to the Centre for Cities, significantly more likely to be indebted than the more affluent areas in the south. How are the Government proposing to deal with this disparity?
Families with children have been perhaps the hardest hit of all. Again according to StepChange, one in five parents who has suffered a hit to their income from covid says that they or their children have had to skip meals, ration utilities, or go without some appropriate clothing for the weather. That debt also comes from increased expenditure: families with children, especially those whose children have been at home rather than school, found themselves spending more money, not less, on food and other essentials.
Poorer households who spend the majority of their money on essentials did not experience the drop in non-essential expenditures that others reported during the pandemic, and these people quite often pay more for their goods and services than the better-off. As Fair By Design has demonstrated, a clear poverty premium is in operation. It has calculated that this costs the average low-income household £490 a year and, for more than one in 10 low-income households, at least £780 a year.
Low-income households have also been more impacted by another covid-19 trend, namely the move away from cash. Some commentators speak as if its demise is a wholly good thing, but the fact is that many millions of people rely on cash for daily transactions, especially those on low incomes who see it as an excellent budgeting tool. I am pleased that the Treasury is now consulting on giving the public the legal right to access cash a reasonable distance from their home. I will be interested to see how that will work, and I am sure that Paul Maynard will have much more to say about the issue. I also welcomed the announcement in the Budget that £3.8 million will be available to fund a no-interest loan scheme. Again, the devil will be in the detail, but the fact is that such a scheme needs to be rolled out quickly if it is to help with the fallout from covid-19.
I have been a vocal critic of the harm done by both payday lenders and rent to own. More recently, we have seen the rise of a new product—buy now, pay later—whose products, I note, have been rebranded as a naughty little treat for women. Research from Which? has disproved the myth that the biggest users of this type of credit are young single women: it found that the biggest group are women with children who have other forms of credit debt and who are using it to buy essential items. The Financial Conduct Authority has said that it will regulate this industry, too: the sooner it does so, the better. I urge the Minister to look at the remit of the FCA to allow it to be proactive when new products emerge that may cause consumer harm, rather than having to wait until harm has been demonstrated. We also need to encourage a savings culture—there could be a whole other debate on how we encourage people with low and fluctuating incomes to save.
I have spoken on a number of occasions about the need to regulate the bailiff industry. With debt to both national and local government increasing during the pandemic, now is the time to tackle this issue. The Government should lead by example by reforming the way in which they recover debt such as council tax arrears, so that local authorities put a clear focus on affordability and fair treatment. We need nothing less than a new debt management Bill to write off historic tax credit debts, embed fairness principles in statute, and establish a bailiff regulator with statutory powers to protect financially vulnerable individuals. I hope the Minister agrees with that.
There are some measures that could be taken to reduce the amount and impact of debt. Enforcement action should be halted for debts built up as a result of coronavirus; non-priority benefit deductions from universal credit should cease; and plans should be brought forward to extend repayments over a longer period, as well as making the £20 uplift to universal credit permanent in order to give people the certainty and security of having enough to live on. Does the Minister agree that removing any money from those on the lowest incomes would inevitably create more debt and hardship?
I also believe that now is the time for a full holistic review of all debt solutions to be undertaken. We need a simple, straight-forward system that, crucially, ensures that people in debt are able to access the solution that best suits their needs. The system has grown in a piecemeal way; we need to fully reform it.
Breathing Space is really welcome, but the 60 days should be flexible to allow people more time to recover if they have reduced income or debts because of covid-19. Other measures that could help include targeted debt write-down of priority arrears—rent, council tax and so on—and longer-term protections so that households can safely address covid-related debts over a more sustainable timeframe.
Some have suggested establishing a special Government fund to provide grants to pay off and cancel all unavoidable debt accrued by households during the lockdown period. Reset The Debt argues that such a fund would make the money already spent on economic recovery worth it for many families, and would release them to be more economically productive in the future. StepChange suggests a covid rent debt fund specifically for private renters, to ensure that the Government honour their pandemic promise that no renter will lose their home. I would be interested to hear the Minister’s views on both schemes.
We also need to better fund our advice agencies, which expect to see an enormous increase in demand for their services once furlough ends. They are now struggling with a serious income shortfall because people have not been visiting them while measures have been in place to mitigate the problems with finance, but those people are building up problems for the future. Such advice agencies offer free debt advice services based on a comprehensive assessment of a person’s situation and then provide practical help and support for however long it is needed. The increase in funding from the Money and Pensions Service is welcome, but applying contract rules rather than grant funding will impose VAT and remove most of that benefit. Could that be looked at again, as it appears to be giving with one hand and taking back with the other?
It would be a scandal if the Government’s package of support merely delayed the onset of unmanageable debt. If we truly want to help struggling people to get back to normal life when the crisis is over, we cannot simply abandon them when support ends.