New statistics published today [4 October] by StepChange Debt Charity lay bare the alarming scale and changing nature of problem debt in the UK. They show that 326,897 people contacted the charity for help with their debts in just the first six months of 2018.
Of the 180,644 who received full debt advice and a recommended debt solution, two thirds were under 40, although only one third of the UK population falls into this younger age group. Only 18% of clients were home-owners, against around 62% of the general population. Around half of StepChange’s clients experienced debt because of job loss, reduced income, or health issues.
Below the headline numbers, StepChange is seeing some worrying trends, which should sound alarm bells for local authorities, utility companies, regulators and the Government. The charity is calling on these organisations to urgently address the issues that are currently being experienced by more and more clients.
In the first half of 2018, over 30% of new StepChange clients were behind on their council tax – by far the highest category of debt arrears. Almost half (48%) of new clients in the first half of the year with council tax arrears had a deficit budget – with more money going out than coming in – compared to just 30% of all clients. Yet local authorities are more likely than most other creditors to pursue debt aggressively – with potentially hugely damaging results when people simply cannot pay.
Council tax collection practices (and other government debts) are notoriously variable, and poor practice is widespread. The National Audit Office recently observed that practice in government debt collection lags behind the private sector – with overuse of bailiffs far too common.
StepChange is calling on more local authorities to follow the lead of pioneering authorities like Hammersmith & Fulham and Bristol in implementing better, more humane alternatives to seeking repayment of council tax arrears without resorting to bailiffs.
Utilities – particularly fuel debts
The proportion of StepChange clients with gas and electricity arrears continues to rise. In the first half of 2018, 13.1 % of all new clients were behind on a gas or electricity bill compared to 11.4% of clients in the first half of 2017.
The rise in the numbers of clients falling behind on utility bills coincides with some companies having already raised prices twice this year. Although some customers may be able to reduce their bills by switching, many people facing financial difficulty may be reluctant to switch even if they are able to, nervous of the complexity of price tariffs and wary of being caught out and being put in an even worse financial position.
Although the forthcoming new energy price cap is welcome, it will not ensure that the neediest households are on the cheapest tariffs. StepChange wants more utility providers to establish flexible repayment schemes, as well as sharing effective good practice on working with people who are struggling to pay to minimise their costs.
Short term high cost credit
The proportion of new StepChange clients with short term high cost credit debt – including payday loans – increased in the first half of the year. In 2017, 16.8% of new clients had a high cost short term debt (a loan with an APR of more than 100% due to be repaid within a 12 month period from when it was taken out ), but this rose to 18.3% for the first half of 2018.
This rise is despite the FCA-imposed price cap on such loans since 2015 – meaning that the total amount payable in interest, fees and charges cannot be more than the original amount borrowed, and the cost per day cannot be more than 0.8%. This helped to reduce the worst harm caused by such loans, but far from eradicated the problems.
It is notable that 29% of clients aged under 25 have a short-term high cost credit debt at the point they seek advice from StepChange.
With nearly one in five clients using short term high cost credit at the time they contact the charity, it seems obvious that there is a need to establish better alternatives.
Phil Andrew, CEO at StepChange Debt Charity, said: “Our clients’ experiences show loud and clear that you’re more likely to get into debt if you are already on a lower income, and that debt problems are often caused by the kinds of life shocks that can happen to anyone – job loss, ill health or anything else that knocks your income off track.
“We saw some particular worries in the first half of this year in the form of a resurgence in high cost short term credit among our clients, more people behind on fuel bills, and a stubbornly high incidence of council tax arrears. Council tax is especially concerning in light of mounting evidence that government debt collection practices are lagging far behind best practice. Government must reflect on this evidence and ensure that government debt is included in the new statutory debt breathing space scheme. Like the Treasury Select Committee, we are not convinced that the scheme can be effective if it is not.”