Budget 2020: looking beyond coronavirus
By: Stepchange Debt Charity
Tags: Uk Government, Covid 19, Coronavirus, Budget, Debt

By Peter Tutton, Head of Policy, Research and Public Affairs

The initial artistic impression score for new Chancellor Rishi Sunak’s Budget focused on his approach to supporting individuals and businesses through the forthcoming period of uncertainty that looms as a result of COVID-19. But what else is in there for people facing problem debt?

Coronavirus was always going to dominate the immediate headline reaction to this Budget. This focus was exacerbated by the simultaneous announcement of the Bank of England’s half-point cut in interest rates, alongside new liquidity measures (supported by Government guarantees) to encourage banks to continue to support new lending.

These include some measures that are directly relevant, and modestly helpful, to people who will face financial hardship as a direct result.

However, what’s less evident is a deeper and more well-rounded acknowledgement that the short-term focus on COVID-19 reveals just the tip of a much larger financial fragility iceberg.

COVID-19 measures

The Budget announced emergency measures to tackle the economic fallout from coronavirus, including that:

Statutory sick pay will be paid to all those eligible who choose to self-isolate, even if they don’t have symptoms

Contributory employment Support Allowance benefit claimants will be able to claim on day one, not after a week

There will be a £500m hardship fund administered by local authorities to help vulnerable people — the Budget report says it anticipates that most of this will be used to support council tax relief.

So, some help, but is it enough?

It might be little surprise that we would say: probably not. That’s because we know that financial resilience is already desperately low. Nearly a quarter of the population has no savings whatsoever.

Over 3 million people are in problem debt in Great Britain, with almost 9.8 million showing signs of financial distress. Our Life Happens report last year found that people who experience a life shock causing a drop in income are three times as likely to experience problem debt as those who do not.

We do agree that decisive action by the Bank of England and the Chancellor to support businesses through the anticipated economic downturn is important, as it should help to protect people’s jobs, which in turn protects people’s incomes.

We were pleased too to see the Government take steps to establish a further hardship fund to deliver £500 million via local authorities in England — but the total amount is modest, and mostly expected to support council tax relief. We think there is likely to be a need for a more extensive hardship fund.

Benefits and Universal Credit

Looking beyond the emergency coronavirus measures, the Chancellor announced that the government is ending the benefit freeze and increasing working age benefits by 1.7% from April 2020.

This is welcome and something we’ve been calling for, but won’t by itself make up the ground lost since the benefits freeze begun. With our recent Problem debt and the social security system report highlighting the 46% of our clients receiving working aged benefits who can never make ends meet, there is a lot more levelling up needed to support the most financially vulnerable.

Our report highlighted the hardship caused by affordable deductions from Universal Credit to repay debts like Universal Credit advances, overpayment and council tax debt.

The Government has acknowledged the problem, reducing the maximum rate at which deductions can be made from a UC award from 30% to 25% of the standard allowance and giving claimants up to 24 months to repay advances.

This is better, but we know half of our clients on universal credit would be pushed in to a negative budget by just a 5% deduction. We had hoped change that would do more to address hardship and prevent debt problems getting worse.

Overall, the Budget announcements fall short of the sharper focus that we think is needed on mitigating the negative impacts of Universal Credit (especially the five-week wait).

Affordable Credit

We’ve been urging the Government for some time to support alternatives to high-cost credit like payday loans, particularly for the most financially vulnerable consumers. The Government hopes to do this by improving access to social and community lenders.

The Budget announced the three winners of the £2 million Affordable Credit Challenge Fund, which is designed to harness the UK’s world-leading fintech expertise to develop tech solutions to the challenges faced by the affordable lending sector, making it easier and quicker to access their products.

However — there was no mention in the Budget documents of any further progress towards the introduction of a No Interest Loan Scheme and we would urge the Government not to lose sight of the very real benefits that such a scheme could provide.

Breathing Space

It was good to see further confirmation of the Government’s intention to introduce the statutory breathing space scheme from early 2021. This important new scheme will provide a period of up to 60 days, where people in problem debt will be protected from enforcement action by their creditors and the charging of further interest and fees on their debts. This includes debts owed to central and local government.

Our overall assessment: good in parts

It was good to see some decisive action and support to try to put more people in a financial position that can enable them to afford to deal with the impact of COVID-19 if it does affect them.

However, gaps remain — and the Budget barely scratches the surface of the millions of people whose financial circumstances are precarious and may be knocked off track at any point by an income shock that is not to do with COVID-19.

If nothing else, current circumstances point up that extreme financial fragility in a way that finally seems to be hitting home to policymakers the reality of many people’s lives, and how stressed finances and insecure incomes are intrinsically linked with the difficult behavioural choices that many people have to grapple with as they try to juggle their incomes and their outgoings.

In the end, people facing financial difficulty often simply aren’t in a position to cope with their own resources; and even debt advice can’t fully resolve their problems, if their problems are simply caused by having too little money to cover the basics of life. We look forward to continuing to work with the Government on tackling these challenges.

· If you’re worried about debt caused by coronavirus, visit our regularly updated information page here.