New statistics reveal scale of problem debt

By agency reporter
October 5, 2018

New statistics published by Step Change debt charity reveal the scale and changing nature of problem debt in the UK. They show that 326,897 people contacted Step Change for help with their debts in just the first six months of 2018.

In their Statistics Mid-Year Update, 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 per cent of clients were home-owners, against around 62 per cent of the general population. Around half of the charity's clients experienced debt because of job loss, reduced income, or health issues.

Below the headline numbers, Step Change says it is seeing some worrying trends, which should sound alarm bells for local authorities, utility companies, regulators and the government. It is calling on these organisations to urgently address the issues that are currently being experienced by more and more clients.

Council tax

In the first half of 2018, over 30 per cent of new clients were behind on their council tax – by far the highest category of debt arrears. Almost half (48 per cent) 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 per cent 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.

Step Change says 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.

The charity is calling on more local authorities to follow the lead of pioneering authorities like Hammersmith and 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 clients with gas and electricity arrears continues to rise. In the first half of 2018, 13.1 per cent of all new clients were behind on a gas or electricity bill compared to 11.4 per cent 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, says Step Change, it won't ensure that the neediest households are on the cheapest tariffs. It 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 clients with short-term high-cost credit debt – including payday loans – increased in the first half of the year. In 2017, 16.8 per cent of new clients had a high-cost short-term debt (a loan with an APR of more than 100 per cent due to be repaid within a 12 month period from when it was taken out ), but this rose to 18.3 per cent 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 per cent. This helped to reduce the worst harm caused by such loans, but if far from eradicating the problems. Nearly one in five clients are using short-term high-cost credit at the time they seek advice.

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.”

* Read Personal Debt Statistics Mid-Year Update 2018 here

* Step Change https://www.stepchange.org/

[Ekk/6]

Although the views expressed in this article do not necessarily represent the views of Ekklesia, the article may reflect Ekklesia's values. If you use Ekklesia's news briefings please consider making a donation to sponsor Ekklesia's work here.