Live: A winter debt crisis

It is becoming clear that those who are most vulnerable in society have also been worst affected by the coronavirus pandemic. A new report on household debt from the Institute for Public Policy Research (IPPR) unfortunately reinforces this cruel irony. As Richard Dawson discovers, when it comes to debt, the North East is also the most at-risk region in the UK of facing financial difficulty

In times like these, you’d struggle to find any household that is not taking advantage of the widespread availability of credit cards, loans and overdraft facilities to help manage day-to-day finances.

Part of that is due to the fact that the cost of living has risen faster than wages in the UK for many years, but it’s also driven by ultra-low interest rates that have made it very cheap or even free to borrow money.

Of course, what we often aren’t conscious of when we’re spreading the payments of a new car or expanding our overdraft limit is that we are putting ourselves in debt.

And while well-managed consumer debt can be a useful part of a household budget, when repayments become difficult or unaffordable, or we have a change in circumstances that negates our ability to pay, our financial world can quickly fall apart.

Millions of us are currently experiencing a change in circumstances as a result of the coronavirus pandemic.

It’s therefore no surprise that the Institute for Public Policy Research (IPPR) is arguing that the economic shock caused by COVID-19 could turn many people’s manageable debt into problem debt.

In a new report, the think tank has discovered that 27 per cent of people entered the pandemic holding consumer debt, with ten per cent already behind on their bills.

Unemployment, furlough and unexpected costs are expected to create major debt burdens for individuals and families, with severe consequences for mental health and wellbeing.

According to the IPPR’s findings, those most vulnerable to facing financial hardship during the winter were young people, ethnic minorities and renters.

Those aged between 16 and 29 were more than twice as likely to have lost their jobs or stopped working during the pandemic. This is because young people’s jobs are most heavily concentrated in sectors impacted by COVID-19 restrictions.

The analysis also found that ethnic minorities were twice as likely to have lost their jobs or stopped working compared to white people.

Renters were significantly more likely to anticipate facing financial difficulty (26 per cent) than homeowners (seven per cent) or mortgage-holders (11 per cent).

The IPPR report also reveals stark regional variations in the risk of households getting into unsustainable debt during the pandemic.

The North East in particular was found to be the most at risk region in the UK.

This is due to a combination of higher pre-pandemic debt levels, low average incomes and tough local restrictions – the North East was the first region in the UK to be put into a local lockdown.

Moreover, 32 per cent of people in the region had some kind of debt pre-pandemic, compared to 27 per cent nationally.

As we head into what could become a winter debt crisis, the IPPR has made a number of recommendations to help ease the burden for households.

Among these are establishing local partnerships between major debt charities, local authorities and communities to address problem debt and promote engagement with debt advice.

The think tank also wants to see improved access to affordable credit and investment in digital practices, such as ‘open banking’, which makes it easier for people to plan budgets and improve affordability checks by creditors.

Anna Round, IPPR North senior research fellow, said: “Too many people found it hard to make ends meet before COVID-19 – the pandemic will make their lives even more difficult and push people into debt who were only just managing before.

“We need support in the short-term to make sure that households and local economies don’t bear the brunt of problem debt, and long-term action to prevent problem debt – including technological innovation and access to affordable credit.”

Shreya Nanda, IPPR economist, added: “People get into problem debt for different reasons.

“Some argue that overspending and poor budgeting are the cause, but the reality is that an increasing number of people simply do not receive enough income to cover the costs of daily life, even when it is lived very frugally.

“Now COVID-19 threatens to push even more people into problem debt through no fault of their own.”