Coronavirus has hit household budgets — government action can help avoid a debt crisis

Our data shows how people in debt are struggling to make ends meet

Since the start of the coronavirus pandemic, 40% of the people Citizens Advice have helped with debt have had a negative budget — meaning their income doesn’t cover basic living costs. That’s up from 37% last year.

The financial impact of coronavirus on the people we help with debt is unsurprising. 6 million people have fallen behind on bills due to coronavirus and a wide range of data sources show that people who were financially insecure before the crisis have been the hardest hit by the pandemic.

From providing in-depth debt advice online and over the phone through the crisis, data collected by Citizens Advice advisers gives a unique insight into how people in financial difficulty have been affected by coronavirus. 3 findings stand out.

What data do Citizens Advice advisers collect when providing debt advice?

When someone comes to us for debt advice, our advisers use the Standard Financial Statement to assess their income and expenditure. Advisers aim to maximise the income people are getting — for instance, checking if people are eligible for benefits they’re not receiving — and use figures agreed between the debt advice and financial services sector to agree levels of expenditure. The result of the process is a realistic budget that means people can sustain debt repayments where possible.

1. The benefits uplift has helped cushion the blow for some — but it needs to be made permanent

In March, the government increased the value of Universal Credit and Working Tax Credits by £20 a week. This increase has been crucial for the people we help with debt: 30% of those who’ve received the uplift would be pushed into a negative budget without the additional £20. That would take the total of people in receipt of uplifted benefits with a negative budget to 75%.

It’s clear the uplift has helped cushion the blow since March — but many people’s household finances are still balanced on a cliff edge. If the uplift isn’t extended many will fall off the edge.

2. Higher bills have put household budgets under pressure

Our data also shows how people in debt spend their money. Analysis of budgets before coronavirus and during the pandemic shows that increasing essential costs in some areas make it more difficult for people to stabilise their finances.

In particular, energy costs, housing costs, and telecoms costs for the people we help with debt have increased. This means the people we help are often less able to reduce their outgoings so they can afford their bills and repay debts.

Jemima’s story highlights how lost income and increased costs have combined to push households into financial distress:

Jemima and her family were already struggling to cover their costs before the pandemic. This got even harder after her partner was put on furlough and lost 20% of his income. With everyone having to stay at home, the family’s energy bills increased to more than what they can afford. This has left Jemima unable to afford essentials like food and nappies. She is terrified that she’ll struggle to pay next month’s energy bill.

3. People can’t afford their debt repayments

Our data also shows how much of a struggle it’ll be for many in financial difficulty to get their finances back on track. On average, people we help with debt have just £20 a month after key living costs to make debt repayments.

Were particularly concerned about people falling behind on council tax and rent payments. In other sectors, people who fall behind on bills and credit payments have some protection from enforcement and recovery action. People who have fallen behind on their council tax or rent due to coronavirus now face eviction and bailiff action.

Looking at the people we’ve helped with those debts since April shows that people we help with council tax debt would take more than 6 years to repay their arrears using all of their available income, whilst it would take 7 years for people we help with rent arrears to pay these off.

How can the government help people in financial difficulty?

For many people in debt the financial impact of coronavirus has compounded already difficult financial situations. The government should seek to help people who’ve suffered disproportionately as a result of coronavirus through the ongoing economic crisis and to get their finances back on track. 3 changes would help:

1. Make the £20 benefits uplift permanent to help people avoid falling into unmanageable debt as a result of coronavirus. The uplift should also be extended to legacy benefits to ensure no one is left behind.

2. Support people by keeping bills down. As a start the government should commit to extending the Warm Home Discount Scheme beyond 2021, ensuring that people who need this support most get it automatically.

3. Help people in debt. In particular, people in council tax debt and rent arrears face severe consequences without further government intervention. Renters should be offered loans and grants to help people stay in their homes and repay debts affordable. Councils should be funded so they can support people behind on their council tax debt to repay debts and avoid the use of expensive enforcement agents.

Find out more about our latest research in our new report, Life on less than zero.