Bank of England credit data mask serious debt problems, says StepChange

Following an 8-month run of aggregate net reduction in consumer credit, largely caused by a reduction in borrowing rather than an acceleration in repayment, some commentators have been focusing on the aggregate benign view of UK household finances. Yet this risks underplaying the entrenched debt problems still being experienced by many people, says StepChange.

StepChange’s own client data report for May, published today, finds that some 330,000 people visited the charity’s website, while around 12,500 went through a full debt advice process with the charity. Two thirds of new clients had credit card debt – the most common debt type – while around half had a personal loan, with many other types of consumer credit also featuring among those commonly held by clients.

Nearly one in 10 cited Covid as the underlying cause of their debt, but the top reasons remain the same as before the pandemic – lack of control over finances, loss of income, unemployment or redundancy, and illness.

The link between debt and low income is a stubborn one that pre-dates the pandemic and has also been exacerbated by it. A third of new clients are receiving Universal Credit, and a similar proportion still have a negative budget where their basic bills exceed their income even after going through the debt advice and budgeting process. Since the start of the pandemic, 6.3m people who experienced a fall in income have had to borrow to make ends meet – a debt overhang that stands in sharp contrast to the experience of households who have been able to deleverage and save during the pandemic.

At the same time, there are tentative signs that post-Covid debt is also biting some different groups of households. While most StepChange clients are renters, there has been an uptick in the proportion of mortgage holders turning to charity for help, for example – creeping up from 11% of all clients in March to 12% in April and 14% in May, coinciding with the withdrawal of the temporary mortgage support put in place during the pandemic.

Commenting on today’s data, StepChange Head of Policy, Research and Public Affairs Peter Tutton said:

“A strong picture is emerging of the two-speed impact of the pandemic on household incomes. There are millions of households on low incomes living on the brink of being unable to make ends meet, or already in problem debt, and for many of these, debt problems have got worse rather than better. It’s vital that public policy doesn’t leave people behind and does focus on getting much-needed support to people who continue to be impacted by Covid-related debt.”

Notes to Editors

The Bank of England’s Money and Credit report for May 2021 can be found here .

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