Wales is facing a Covid debt crisis
What is the problem?
Helping people in debt has been a key part of our work at Citizens Advice Cymru for decades. This year, the financial effect of Covid-19 has pushed many more families in Wales into debt, and we know that without intervention the likelihood is that many of them will face long term difficulties.
Our research shows that an eye watering 280,000 people (11% of the Welsh adult population) have fallen behind on one or more household bills in Wales since the start of the pandemic. As a nation we owe a total of £35,500,000 in household bill debt as a direct result of the impact of Covid.
We came to this figure by multiplying the number of households our survey estimated to be behind on different bills with the average bill cost for each service. As there is a lack of public data on the specific amount of debt in each sector, we made a conservative estimate by assuming each household in arrears had been unable to pay half of their bill for 3 months.
Who is affected?
One of the most worrying things about the debt we’ve uncovered is that it’s far more likely to affect the most vulnerable people. Our survey shows that those living with a disability are more than 3 times as likely to have fallen behind on a bill since the start of the pandemic. Young people are also more likely to have fallen behind with bills, as well as those who fall into the ‘shielded’ or ‘extremely clinically vulnerable’ groups.
Council Tax — the most common debt issue we see
Whilst many of the policy levers which directly affect household finances sit with Westminster, there is capacity for the Welsh Government to act within the current devolution settlement to protect Welsh households from financial crisis. Council tax debt — the most common debt problem that our clients seek help for — is devolved to Wales. But council tax collection practices in Wales disproportionately impact the vulnerable and push many families into further debt.
Debt collection (and specifically the use of bailiffs) for council tax debt was originally halted during the first Covid-19 lockdown — however, it has since been reinstated, and, during Wales’ firebreak lockdown earlier this months, where huge chunks of the economy were shut down, bailiff use was allowed to continue. If you’re in debt because of a worldwide pandemic and unable to work due to a government instructed lockdown — councils are still allowed to knock on your door and threaten to take away your car, your sofa, your bed. We’ve already seen cases of bailiff use increase since the summer. This isn’t a hypothetical scenario — this is happening.
And, unlike credit card debt, council tax debt means you could be liable for your entire annual bill despite having missed only 1 payment. So from missing 1 monthly payment of £100, you’re now liable for your entire £1,000 bill. It’s easy to see how 1 or 2 missed payments can result in a debt spiral.
The Welsh Government’s Council Tax Protocol does say that bailiffs should only be used as a last resort. But this protocol is not mandatory — and is certainly not being implemented by all local authorities. We know that people in Wales face a ‘postcode lottery’ in terms of how well or badly their local authority handles council tax debt. In the worst cases, local authorities are targeting vulnerable families with bailiffs and pushing them into a spiral of increasing debt.
What can the Welsh Government do?
To minimise the harm caused by coronavirus debts, the Welsh Government should:
- Ensure council tax collection practices don’t push people further into debt
Current regulations governing council tax debt collection mean that people can be made liable for the full annual bill if they miss 1 payment. Councils also have limited powers to recover debt without getting a court order, which can add fees of up to £70 to the outstanding debt. Use of bailiffs to collect arrears can also result in fees of up to £310 being added to the debt, and cause significant stress and anxiety for people in vulnerable circumstances. Whilst the Council Tax Protocol for Wales is a welcome move towards making the collections process fairer, it is not a statutory for Local Authorities. The Welsh Government must do more to ensure that local authorities implement the Protocol.
2. Work with utility companies to improve their identification of households in need and raise awareness of available support
With more people working and spending more time at home, many families are having to spend more on energy and other utilities. At a time when incomes are already squeezed, it is crucial that the Welsh Government takes steps to ensure that consumers who are struggling with bills can access the support available in Wales.
3. Maintain the funding increase for the Discretionary Assistance Fund into the next financial year
Whilst it is difficult to predict the direction the pandemic will take or what public health restrictions will be necessary over the coming year, it is clear that the economic impacts of the crisis will continue to affect families in Wales. Maintaining additional funding for emergency grants will ensure that the fund can meet demand amongst people in severe financial difficulty throughout the challenging year ahead.
