Why are Churches talking about Household Debt?
Local churches and community leaders have told us that many families have been struggling since lockdown. People’s priorities were of course focussed on meeting immediate needs, but there has been increasing anxiety that low-income families are being forced to borrow or delay paying bills in order to keep going.
Many local churches offer support to those who are struggling in the communities they serve. We are also called to highlight injustices and to seek changes to wider society in order alleviate and prevent the problems we see.
The effects of Covid-19 have been profoundly unequal. They have loaded unavoidable debt on the poorest in our communities. That is unjust and demands a society-wide response, such as a Jubilee, to free families from this burden of debt.
How many people and families does this affect?
6 million families have fallen behind on rent or other household bills due to the lockdown. Almost 1 in 5 families have borrowed to pay for food in July 2020. These numbers give a sense of the scale of the problem, but the simple answer is that there is no public database of household debt so these numbers only offer a baseline – others who are struggling are not captured in these numbers.
Who is this affecting?
Those who were most likely to experience poverty before lockdown are most likely to have racked up debt during lockdown. The opposite is also true. Those with high incomes were least likely to have lost income and their cost went down, meaning that many actually paid off debts.
The lockdown debt burden is focused on BAME communities, especially Black families, young adults, people with a disability and households with children. Essentially, debt is weighing down those whose shoulders are often least able to bear the burden.
How do you know that household debt is a problem because of lockdown?
We first became aware of this issue because church and community leaders had expressed their concerns. Over the months of lockdown a range of surveys from debt charities and other pieces of evidence confirmed what the local leaders were saying. Lots of pieces of evidence have gradually built up a picture of the scale of the debt problem and the underlying reasons why it has occurred.
The data is from a variety of sources, but it all points in one worrying direction – that there is a household debt crisis building which requires a substantial intervention from Government in order to avert it.
Why is no one else talking about this?
Debt Charites have talked about this issue during the lockdown. Major charities in this area, such as Citizens Advice and StepChange, have produced compelling evidence of a growing debt problem, and will continue to campaign over the next few months.
One of the problems in highlighting this debt is that it is being forced upon families who have little political or media influence, and are therefore easy to ignore. The problem of household debt is personal and hidden, and policies of forbearance and delaying enforcement make this problem, and the suffering it is causing, even easier to ignore.
As Churches, we believe society should be listening to these concerns and voices.
How much will this cost?
The debt charity StepChange estimated that such a fund would need to be around £5bn. This sounds like a large amount, but is put in perspective when compared to the £160bn Government needed to spend to support businesses during the pandemic.
Why should debts be cancelled?
There are three reasons why a Jubilee – or debt cancellation – is needed:
- The impact of the lockdown was deeply unequal. Families already finding it difficult to make ends meet saw wages drop at the same time as essential expenses increased. Such families could not avoid debt. It is unjust that the burden of the lockdown, which was introduced for the good of the whole of society, should fall disproportionately on these families.
This is compounded by the fact that higher income groups were more likely to keep their income, while reducing their spending. Therefore, unsecured debt levels actually fell by around £14bn over the first months of lockdown, as higher income groups paid off their debt.
The burden of the lockdown, introduced for the good of the whole of society, should not be allowed to weigh heaviest on the poorest.
- People will be weighed down by unsupportable Covid-debt for years if there is no Jubilee. The consequences of this in terms of holding back lives and opportunities, as well as for emotional and mental health, will be extreme. The burden of debt will damage families. Some will struggle on, while some will become insolvent and some will even eventually lose their homes. This is an outcome that is simply not right and can be avoided if there is debt relief.
- Unpaid and potentially unpayable debt acts as a drag on the economy. Debtors lives are much more difficult, leaving people with fewer resources, a stifled ability to move location or change circumstances to grasp at opportunities. Importantly, the mental and emotional weight of debt makes everything more of a struggle.
Creditors must also make judgements about what debt is payable, negotiate with debtors, seek enforcement action and, as a consequence, their cash-flow is reduced and uncertain. Debt cancellation helps them too. Buying up debt releases both people and businesses to better contribute to the future economy. We argue that debt relief is both compassionate and economically necessary.
Aren’t there ways of resolving debt problems without cancelling debt?
If people are having problems with debt they should always seek advice. Debt advisors are able to help with budgeting, negotiating with lenders and setting repayment plans. Should that not be possible, there are processes which will – after a year or more – write off debts at the expense of the lender. These processes are often necessary but are not pleasant, and not what we would wish for people to go through.
Debt brought on by lockdown was unavoidable, due to circumstances no person could reasonably have predicted. It is not helpful or just that low income families may be forced through these insolvency processes. Nor is it just that many lenders who offered credit responsibly and in good faith – such as small landlords – should be left with the debt also.
Isn’t the nation in too much debt already?
All across the political spectrum people understand that national debt is not the pressing problem. Getting our families and our businesses back on our feet is the priority. The Jubilee Fund is a wise investment, as it will enable millions of families to weather the economic storms and to be part of a recovery.
The cost of a Jubilee Fund would be around £5bn, which is a great deal. But this figure is put in perspective when compared to the £160bn of spending needed to support businesses during the pandemic.
Why are we asking Government to pay?
The burden of the lockdown, introduced for the good of the whole of society, should be born equally throughout society. Only Government can ensure that this burden is fairly shared. Only Government has the capacity to create and effectively deliver a program to tackle lockdown debt. That is why we are proposing that Government set up a Jubilee Fund, possibly with contributions from private sector lenders who would be indirectly assisted by the fund.
Isn’t it naïve to think these debts can be written off by Government?
The lockdown was an unprecedented response necessitated by the pandemic. It had huge social and economic consequences which have required unprecedented interventions by government including a scheme to support 9 million workers, and support to business totalling over £160bn.
Household debt focused on the poorest is another consequence of the lockdown that is considerably cheaper to address. It could be argued that the truly naïve point of view is to expect families in a recession to be able to repay these unavoidable debts.
Won’t write off lead other people to simply not pay their bills?
It is argued that writing off debt presents a “moral hazard”, where people are encouraged to borrow irresponsibly in the hope or expectation that they will not be required to pay it back.
This is clearly not the case here. The pandemic and lockdown are unique circumstances with unique economic consequences. The Jubilee Fund is clearly designed to deal with only debt accrued during the time limited period of the national lockdown. The possibility of encouraging irresponsible borrowing at a later date does not arise.
It is hard to envisage a mechanism where the Jubilee Fund puts future repayment of bills or other debts at risk. There is however clear evidence that writing off debt that is either unpayable or would leave the family under severe economic constraint has the opposite effect, of promoting future repayment of debt. In short, officials who want Council Tax paid next year should not worry about the moral hazard issue, but instead worry about the issue of today’s heavy debt burden.
What about other lockdowns?
The first lockdown rapidly presented a set of unique, hard to predict circumstances. One of the unanticipated consequences was that debts were focused on the poorest. That is not right and will be damaging to those families and the wider economy unless a solution such as the Jubilee Fund is put in place.
Government is now aware that lockdown has this effect. It is incumbent on any Government planning any economic support package for a future lockdown to provide sufficient income or other support such that low-income families are not forced into debt. To borrow a phrase – for any future lockdowns, “a stitch in time” is needed.
Wouldn’t this be an administrative nightmare and open to abuse?
This report has deliberately tried not to be prescriptive on the method of moving the money from the Jubilee Fund to debtors/creditors. That is because there are a number of others making proposals and their mechanisms are similar.
We have been assured that by repurposing existing grants streams through mechanisms such as Universal Credit payments and payment to local authorities and social landlords, such a scheme would require considerably less administrative effort than other responses to Covid-19 such as the furlough scheme.
There are additional questions about the levels of evidence and scrutiny required to authorise a payment. This would have a large bearing on the amount of administrative time required, and on the other hand its openness to abuse. This can be better explored by other groups. But our key message is that however such a system is administered and however wide its reach or rigorous its criteria, justice demands that debt is written off rather than being allowed to weigh down families or merely relocated to the Government’s books.
What about people who just borrowed irresponsibly?
This massive spike of household borrowing due to Covid-19 was unavoidable. Given the reduction in income and rise in costs, families simply could not make ends meet and borrowing and debt were the inevitable results.
We don’t think the risk of helping a few people who made foolish decisions should get in the way of helping the millions of people who have been burdened by unavoidable debt.
Is this not simply a sticking plaster meaning that debt will build back up again?
Without adequate incomes, debt will build up again. Job support schemes and Universal Credit need to provide adequate support, and in many cases they don’t. We are backing campaigns to ensure incomes can be supported over the next few months. Importantly, there is the #keepthelifeline campaign to ensure Universal Credit permanently retains the necessary £20/week uplift introduced at the start of the pandemic.
Adequate incomes are vital, but unless the debt caused by the lockdown is properly dealt with they will not be enough. Debt relief and liveable incomes must go hand in hand if families are to find a stable platform from which to face the future.
Should we not simply create a charity to #ResetTheDebt?
It this neither just nor practical for an existing or newly created charity take on the task of tackling the debts accrued by households during lockdown.
It would not be just, as the problem of lockdown debt was created by a Government policy that had disproportionate effect on the poorest families – burdening them with debt. That is not a criticism of a policy which was instigated during a difficult time, but it does indicate that the responsibility lies with government to act and address the issue.
It would not be practicable, as the scale of need and the scale of potential charitable giving would not match. Only government has the financial and administrative resources required to tackle lockdown debt.
Charity is an important part of our response to need – and churches are the inspiration and home for many. But it is Government’s role to address structural problems within our economy that create injustice and poverty. This is such a situation.
Are there not already many ways in which people in debt are being helped – some of them already funded by Government?
Current Government schemes which respond to household debt seek to provide additional funding for advice and change regulations to delay the enforcement of debt. Delaying court action, bailiffs and eviction is always welcome. However, these measures will delay the enforcement but not prevent it.
The “Breathing Space” initiative was announced in February and is due to be introduced in 2021, and will give people with mental health issues 60 days where they are protected from interest and creditors. While this is a positive, it is clearly very limited in scope and not yet in place.
Delay is neither a just nor an effective solution to problem of lockdown debt. Unsustainable debts do not need to be delayed – they need to be written off. Our fear is that delay will serve to make the problem of lockdown debt easier to ignore, and allow the hardship of many families to go unaddressed.
Is the Government’s “Breathing Space” scheme anything like a Jubilee?
The Breathing Space scheme creates an additional delay to the household debt problem. In common with the other delays that government have put in place, it is welcome but does not offer comprehensive solution that is needed. A Jubilee Fund is our proposal for such a solution.
Many people writing to their Conservative MPs about the Reset the Debt are receiving a response about the government’s “Breathing Space” scheme. There is however no connection between the two ideas other than they both relate to household debt.
“Breathing Space” is a set of long planned and welcome regulations that come into force in May 2021, and announced before the pandemic. When a person seeks professional debt advice, it may be possible for them to ask for “Breathing Space” for 60 days. During this time, charges and interest on debts are frozen and lenders are prevented from making contact. The idea is that the person gets an opportunity to take advice, budget and negotiate with lenders before their debts spiral out of control. Breathing Space may also be extended if the person is having mental health difficulties.
The Breathing Space scheme was not designed as a response to the Covid-19 household debt crisis, nor will it be in place in time to help those who have been unable to pay bills or rents during the first lockdown, whose protections from court action and eviction ran out in September.
If your MP has responded to you about the Breathing Space scheme and you would like to reply, you can find help here.