The Treasury has announced extra cash to support debt advice charities as a report warns of a £6bn personal debt mountain facing household budgets, directly caused by the coronavirus pandemic.
The government said £37.8m in additional support for debt charities in England was the result of recognition that “some people are struggling with their finances” as the COVID-19 crisis lockdown restrictions continue to wreak havoc on the economy, despite just under £50bn being dispersed to prop up jobs and businesses at the last count.
The announcement was made as separate studies pointed to a devastating impact on family finances since March, with the debt charity StepChange warning that 4.6 million people had already accumulated a “tsunami” of debt or arrears of more than £6bn.
It believed those with annual incomes below £30,000 were likely to have fallen behind since the crisis began.
Chief executive, Phil Andrew, said: “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”.
That sentiment was echoed by the Joseph Rowntree Foundation think-tank, as it also called for a strengthening of central government support to middle and lower income households.
Its research, based on a survey last month, found just one in eight households on low incomes had managed to strengthen their finances since the start of the crisis compared to two fifths of higher income families.
It reported that just 30% of the poorest fifth of households had managed to cut their spending – leaving them more vulnerable at a time of uncertainty over incomes.
Laura Gardiner, research director at the Resolution Foundation, said: “Many high-income families have reduced their spending in recent months.
“Those on lower incomes, however, have found it far harder to reduce spending which, when combined with income falls, means many are seeing their ability to manage financially deteriorate.
“As policymakers prepare their plan to support Britain’s recovery, they must prioritise strengthening the family finances of low- to middle-income households.”
The chancellor Rishi Sunak has admitted that the government’s schemes will save many jobs but not all.
The most recent predictions from the Bank of England suggest the UK’s jobless rate will more than double to 9% this year as the country endures its worst economic slump for decades.
However, data released by the Bank a week ago suggested that the country’s consumer debt mountain had fallen by £7.5bn in April – the first full month of the lockdown.
The government said that its additional support to debt charities meant that more than £100m had been made available in the current financial year to support those struggling.
The new money, partly funded by bank taxes, is to be distributed by the Money and Pensions Service.
Economic Secretary to the Treasury, John Glen, said: “We know that some people are struggling with their finances during this difficult time, which is why we want to make sure people can access the help and support they need to manage their debts and get their finances back on track.
“The joint funding package will help debt advice providers to continue with – and increase – their vital work.
“This extra funding comes on top of the unprecedented package we have put in place to support individuals, businesses and the economy through the coronavirus outbreak.”
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