How can we solve the UK's debt problem?

As we eagerly wait to see what the top priorities for the new government will be, it can’t go unremarked that the pressing issue of debt and financial difficulty was given little attention in the lead up to the election. Given just how tough the past few years have been for household finances, wide-ranging and ambitious plans for recovery were conspicuous by their absence.

Just how widespread is financial difficulty at the moment? We estimate that nine million people – that’s one in six of us – are struggling to keep up with everyday bills and credit commitments.

Meanwhile, we estimate the number of people borrowing to pay for essentials has risen starkly to one in four of us, that’s 13 million people. Relying on credit to make ends meet often leads to a debt spiral that can have devastating effects on people’s mental and physical health, can hamper their ability to work and ultimately will have a long-term effect on the productivity of the wider economy.

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So, what will it take for the next government to tackle the actual root causes of debt and financial difficulty, rather than simply putting a sticking plaster on the wounds that exist? For a start they need to look at the underlying drivers of debt, not just its knock-on effects.

It’s easy to look at how many people are struggling to get by and focus on the difficulties caused by the cost of living crisis and the Covid pandemic. But even before these events took place we had plenty of evidence showing us that negative, income-slashing life events – such as illness, bereavement, relationship breakdown, job loss, or unforeseen costs – made problem debt significantly more likely, and that the more of these events happened to you, the more likely you were to be in difficulty.

What was also clear well before the pandemic was that the groups of people most likely to be affected by long-term debt issues and turning to us for help had shifted, with more people in employment struggling with debt.

The type of debts people most commonly come to us with has also shifted. While we are still supporting clients with similar levels of unsecured debts like credit cards, overdrafts and retail credit, what’s really shocking is that debts for essentials like rent, council tax and energy have become much more common.

It’s also certain groups who disproportionately struggle to keep their heads above water, and the cost of living crisis has only raised the amount needed to make ends meet. According to the FCA’s Financial Lives survey, a higher proportion of those on low incomes, renters, single parents and people living with long term illness are finding it more difficult to cope financially. Not only has it become harder to cover living expenses, but building up a rainy day savings pot on top of that is near impossible.

So, what needs to happen if the root causes rather than simply the symptoms of debt are to be addressed?

First and foremost, we need to get households – all households – into a position where they can afford basic living costs . The new government can prioritise some urgent steps to help those most exposed to poverty, such as ending unaffordable debt deductions from benefits and caps that are driving hardship like the two-child limit.

Beyond that there needs to be a real commitment to preventing debt and destitution before it occurs. For the groups facing acute affordability pressures with their household bills, a wider roll out and take up of social tariffs for utilities would be a step in the right direction toward ending fuel, water and data poverty in the UK.

Giving households a fair chance to manage financial shocks without turning to harmful, expensive credit would also reduce the numbers of people currently at high risk of problem debt. A well-developed financial inclusion strategy would not only improve access to affordable financial products but also support households and employers with saving schemesto kick start the number of people saving for a rainy day.

Of course addressing gaps in the safety net will take time, but what is essential is that our policymakers make households that cannot pay for the basics a priority.

We fervently hope that the first 100 days of the next government will see a determined plan of action to bolster the nation’s financial resilience, across all household types and especially the most financially vulnerable.

Vikki Brownridge is CEO of StepChange.

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