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Government Oversight Could Plunge At-Risk People into Debt

The good news is the government has taken steps to ease the burden on people with problem debt with its Debt Respite Scheme. The scheme prevents creditors from taking enforcement action against debtors for 60 days, giving them time to get their financial ducks as close to a row as possible, so they can at least keep food on the table and their kids in warm clothes. 

The bad news is that the powers-that-be failed to include government loans, including Advance Payments for Universal Credit (UC). The Advance Payments are supposed to help applicants get through the claim processing period without starving or being evicted. Unfortunately, as soon as the claim is processed, repayments are automatically deducted, forcing people to turn to other credit providers to make ends meet.

Back to where they started

The Advance Payments get people over the hump, and then the automatic deductions put another hump in the way. It’s a vicious circle, or as The Salvation Army calls it, a debt trap.

Between March and September 2020, as Covid took firm hold, over one million applicants received Advance Payments. There is the very real chance that many of those will face starvation and homelessness – again – while the government wastes no time in recouping the loans.

And it’s going to get worse.

The Salvation Army recently released its report, ‘No One Left Behind,’ which forecasts a bleak time ahead as Covid-related debt deepens and affects even more people who can already barely break even.

The report is based on the number of calls to The Salvation Army’s debt advice lines and found that:

  • The level of debt for people on low incomes has increased by a whopping 191%!

    To be exact, the average debt for December 2019 to February 2020 was £1220. From June to August 2020, the average debt was £3552!

  • The average debt for full-time workers has increased to over £13,000.

    To be exact, the average debt for full-time workers from December 2019 to February 2020 was £8926 per person. The average debt for full-time workers from March to May 2020 was £13,380 per person!

  • The debt levels at the peak of the pandemic for private tenants increased by 43%.

    To be exact, the group’s total debt for December 2019 to February 2020 averaged £10,183 per person. The total average debt for March to May 2020 increased to £14,549 per person!

Letter to the Economic Secretary to the Treasury

The Salvation Army has written to John Glen, the Economic Secretary to the Treasury, to strongly recommend a change in focus from recouping loans immediately to providing much-needed support to people in danger of being sucked into the debt trap.

The Salvation Army is not alone in its concerns, as the letter was co-signed by 16 partner organisations.*

Commenting on the situation, Lorraine Cook, Financial Development Inclusion Manager for the Salvation Army, said, “It’s the very vulnerable we are most concerned about. The people queuing outside our foodbanks because they can no longer afford to eat are those most likely to rely on Universal Credit Advance Payments to get by. The moment someone has an unexpected payment like a boiler repair or a new pair of trainers for their child is where repaying this debt can become unmanageable.”

The situation is going to get worse as more people lose their jobs or have to take a salary cut to keep their jobs.

Lorraine Cook added, “Banks and credit card companies will be forced to give much-needed space to people struggling with debt and yet the Government can continue to take significant portions from people’s income without respite. The Government should be less focused on collecting money and instead help people manage their finances by highlighting the professional support available from debt support services.”

The government has acknowledged the oversight and said it plans to include Advance Payments to the Debt Respite Scheme. However, the process will be implemented on a ‘phased basis’ with no indication of how long it will take to complete all phases. 

In the meantime, it’s likely that thousands more vulnerable people will end up swimming in debt. 

Additional information

* Partner organisations

  • Advice UK
  • Bournemouth Churches Housing Association
  • Enham Trust
  • Entitledto
  • Fedcap Employment Limited
  • Friends of Stour Connect
  • Get Ready for Work
  • Groundwork
  • Integrate
  • Landau
  • Longhurst Group
  • National Association of Welfare Rights Advisers
  • Quaker Social Action
  • The Women’s Organisation
  • Unison
  • Z2K