As the government ramps up the response to the Covid-19 pandemic, households and small businesses across the country are understandably worried about what it will all mean for their finances. It is not just people who have to take time off work or self-isolate that are affected. The impact of widespread social distancing measures will hamper many people’s ability to earn and there may be particular challenges for those who are self-employed or running small businesses. It is hard to get away from the fact that the risk of households experiencing debt problems has undoubtedly increased as a result.
Positive measures announced so far
However, there are reasons to stay positive. We, along with our partners in the debt advice sector, are doing everything we can to provide support to those who need us during this period, and you can find out more about Money Advice Trust’s organisational response here.
We have already seen some positive steps being taken: changes to improve the timeliness of support from Statutory Sick Pay (SSP) and Employment and Support Allowance (ESA); hardship funds for households and small businesses; mortgage payment breaks; protection for renters from eviction; and extra help for people on energy prepayment meters – to name a few. Creditors have been announcing plans to provide flexibility and forbearance. These moves are very welcome.
What more is needed to reduce the risk of problem debt during the pandemic?
These are unprecedented times. The sheer scale of the financial shock means that further measures are undoubtedly going to be needed.
We are, unfortunately, already seeing the impact on people’s incomes. Self-employed people are already reporting having jobs and contracts cancelled as people reduce all non-essential contact. Although there have been welcome announcements of help for small businesses, particularly in the retail and hospitality sectors, we are still seeing people being laid off either temporarily or permanently as businesses shut. These people aren’t ill or having to self-isolate but they are seeing a huge drop to their income.
Getting direct cash support to households as quickly as possible
Just as the Government has done with businesses, we need to get financial support to households fast. Proactive support to help stabilise people’s incomes now and replace lost earnings will be much more effective than waiting and dealing with hardship and debt later.
There are different ways the Government could do this: it could be through direct cash grant payments to affected households; through expanding hardship funds; or through temporarily increasing the generosity of existing payments like Statutory Sick Pay and Universal Credit.
Helping people who fall behind
We’ve already seen lots of welcome announcements about creditors showing forbearance and flexibility if people fall behind. This will be vital in the weeks and months ahead.
We want to see Government, regulators and providers working together to make sure people get this protection across all the debts they may have – including any arrears on essential bills. We would like to see an immediate pause on all forms of collection and enforcement activity.
Central and local governments should be prepared to extend the same type of flexibility in its own debt collection. People need to receive the maximum possible income at the moment, so all deductions from benefits to repay debt should be temporarily paused.
The Covid-19 crisis has hit just as many people are receiving their council tax bills for 2020/21. Many people already struggle to pay their council tax (almost 30% of National Debtline callers last year had council tax arrears), and this is only likely to grow in current circumstances. Flexibility must be shown: we’d like to see the Government funding local authorities to offer a 3 month payment holiday to those who cannot pay due to the impact of Covid-19. And all bailiff use should be suspended: No one should be facing unaffordable demands for payment at this time.
Providing support through the debt and money advice sector
As debt advice charities, we are doing everything we can to help people during this time. We are likely to see increased demand now and well into the future, as the long-term impact of the economic shock is felt. We will continue to work closely with partners to make sure the sector has the resources it needs – in the short term to adapt service delivery to support home-working and continuation of services, and in the long term to meet increased demand.
Targeted action can make a difference now
Targeted, coordinated action to support households and small businesses now has the potential to make a huge difference to people. Based on our shared experience of supporting people in financial difficulty, we’ve worked with StepChange Debt Charity to develop a set of key measures that Government, regulators, creditors and employers can take now to help stop the financial impact escalating.
In the meantime, we’ll continue doing all we can to help people now, including providing regularly updated information on the help available to households and to self-employed people and small business owners.