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8 July 2020

Our guest blog has been written by Jane Tully, Director of External Affairs and Partnerships at the Money Advice Trust.

The impact of Covid-19 financial support measures from a debt advice perspective

The Covid-19 emergency has reached into almost all areas of people’s lives and, for many households across the UK, the financial impact has been severe. In March, the Government announced a raft of initial emergency support measures for households and businesses impacted by the outbreak. Measures included:

  • The Coronavirus Job Retention Scheme
  • The Business Interruption Loan Scheme
  • Grants for small businesses
  • A range of changes to the benefits system
  • A hardship fund to be distributed via local councils.

Later, we also saw the introduction of emergency support for self-employed people through the Self-Employment Income Support Scheme, an increase in the grants available to help businesses, and a three-month suspension of recovery action for debts owed to the Department for Work and Pensions, amongst other measures.

Regulators have also introduced emergency measures and guidelines. For example, the FCA introduced and extended payment breaks and forbearance measures to consumer credit customers. Energy and telecoms companies were also urged to show forbearance by regulators rightly keen to ensure people retain access to essential services during the lockdown. There is no question that these support measures from Government, regulators and creditors have helped to stem the immediate financial crisis for some households.

However, there are growing concerns about the potential increase in debt problems we are likely to see in the coming months. Across the debt advice sector, we are already working to increase the number of people we are able to help, in anticipation of a significant increase in people likely to need our support.

As we look ahead to how we can respond to this challenge, we need several areas of focus:

1. Addressing gaps in support

The support put in place has been on an unprecedented scale. Unfortunately, however, there are still some people falling through the gaps. Our own analysis shows some groups have been left without support as they weather the financial impacts of the virus. This includes millions of self-employed people, such as those who are newly self-employed and business owner-directors paid through dividends – who haven’t been able to access support from the Self-Employment Income Support Scheme.

Renters are another group we are concerned about. While mortgage holders were able to access payment breaks, renters are reliant on the response from individual landlords. As a result, many renters could be in a precarious position if the ban on evictions is lifted in August, as planned.

2. Supportive debt collection

A key factor in how households recover from the financial impact of Covid-19 will be how they are treated when it comes to debt collection. It is vital that people are offered safe and affordable ways to deal with any arrears on household bills that may have built up.

This is particularly clear in the case of council tax. We have long been calling on the Government to improve council tax debt collection practices but the outbreak of Covid-19 has brought this issue into even sharper focus.

Even before the pandemic, 30% of callers to the National Debtline were behind on their council tax. Citizens Advice now estimates that more than two million people have fallen behind on council tax payments due to Covid-19 alone.

Out-of-date and ineffective collection practices mean that people struggling to pay their council tax may be faced with aggressive enforcement action. Currently, bailiff visits are banned but will be allowed to restart from 24 August. That is why, in partnership with StepChange Debt Charity and Citizens Advice, we have called on the Government to take action and improve council tax collection practices before this ban is lifted. This includes changing regulations to stop people becoming liable for their entire annual bill when they fall behind on instalments. It would also mean councils taking certain steps before moving to enforcement action – including setting up an affordable repayment plan.

Without these changes, many households could face an enforcement cliff edge when emergency support measures are lifted.

3. Avoiding the financial cliff edge

While the emergency support measures in place at the moment have provided relief to many people, it is vital that any lifting of these measures does not lead to a financial cliff edge for those who are reliant on them.

The focus now must be on how we recover from this crisis in the long term, without struggling households and businesses being plunged into further financial difficulty and debt. The Government’s Breathing Space Scheme, due to be launched next year, and the Cabinet Office’s new call for evidence on government debt management practices are welcome steps.

Nevertheless, the financial impacts of Covid-19 for people struggling with problem debt are likely to be felt long after the lockdown has been eased.

Get help

At this difficult time, The Charity for Civil Servants is here to help and support you. We’ve got lots of resources and tools available. For example, you can chat with JaneBot, listen to our free advice webinars and use our Budget Calculator to help you plan and manage your finances.

If you are experiencing financial difficulties because of an unexpected need, or if circumstances are making it particularly difficult to manage, we may also be able to offer financial help. Don’t suffer in silence – find help and support now.

About the Money Advice Trust

The Money Advice Trust runs National Debtline and Business Debtline, which provide free debt advice to many thousands of people and small businesses struggling with problem debt every year. Their advisers are hearing first-hand the impact the pandemic is having on people’s finances. With these insights, they are working with government, regulators and various organisations to ensure people get the support they need to cope financially during this crisis.

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