Poorer families face higher debts as income losses bite

Michelle K. Wallace

Many poorer families have faced a substantial rise in debt during the pandemic as they have found it difficult to cut expenditure as much their income has fallen, according to two reports published on Tuesday.

Research by the Resolution Foundation think-tank found the squeeze on family finances was greatest among poorer households, even though declines in income were spread evenly across income scale.

That financial pressure has compounded the debt problems already faced by poorer households, according to a separate study by the debt charity StepChange. It found that families more likely to have problem debt at the start of the pandemic have seen their incomes hit harder than those with fewer money problems in early March.

The reports complement an existing picture of people in lower wage and part time jobs finding they are most likely to be furloughed since the coronavirus crisis started.

In a special YouGov survey seeking to uncover how income distribution might have changed during the pandemic, the Resolution Foundation found that income falls were evenly spread across those on higher and lower incomes.

Part of this was because many higher income households have one person on low earnings, so hits to low wage jobs can spread far up the income scale.

Laura Gardiner, research director at the Resolution Foundation, said: “Low earners often live in middle- or higher-income families”.

The problem for family finances came, she added, because while higher income households have reduced spending, often by more than their incomes have been cut, this was much harder for families on lower incomes and less discretionary expenditure.

The result, according to Phil Andrew, the chief executive of StepChange, was that there would be a “tsunami” of household debt and arrears on rent, council tax and utility bills that poorer families needed to deal with.

From a separate YouGov survey, StepChange estimated that 28 per cent of adults in Britain were hit financially by Covid-19 and a third of this group were showing signs of financial distress before the pandemic struck.

“We were already dealing with a debt crisis, but Covid has so far added another four million people and counting to the number who are going to need help finding their way back to financial health. With £6bn of additional household debt directly attributable to the effects of the pandemic, this is a problem that isn’t going to solve itself,” Mr Andrew said.

He called for continued forbearance of debts and a £5bn central government fund to provide grants to families forced into debt so that they could repay what they owed.

The Resolution Foundation also called on the government to prioritise the family finances of squeezed households in a “recovery Budget” in July, and to provide additional taxpayer support to improve the resilience of their finances.

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