Our debt advisors have not seen anything like this in 29 years - Phil Andrew of Leeds charity StepChange

At StepChange we’ve been giving debt advice for 29 years out of our Leeds headquarters, and now from centres spread across England, Scotland and Wales.

When it comes to debt, you would assume we’ve seen it all. Yet in all that time we’ve never seen anything quite like this pile-on of problems for the most financially vulnerable households.

Now that the April increase in the energy price cap has taken effect, energy bills are skyrocketing. Among new StepChange clients with a responsibility for paying utility bills, in February (before the increase in prices), 28 per cent were in arrears on their electricity and 23 per cent on their gas – a situation that now seems certain to worsen further.

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StepChange has modelled the likely effect of the rise in energy bills, based on the profile of clients who sought advice from the charity in 2021. We estimate that, even taking account of the Government’s support measures, the typical StepChange client will see their monthly energy bill jump from £111 to £172 – a 54 per cent increase.

Charity StepChange is warning about a 'pile-on of problems' for families.

The average client will see the amount they have left over after paying just essential bills and costs more than halve from £100 to £46, and the proportion of clients who are likely to have a negative budget could rise from 27 per cent last year to 45 per cent.

These are horrendous impacts. Like many other campaigners, we were shocked that the Chancellor’s Spring Statement didn’t contain measures that would help to alleviate them. From a Government that has taken some meaningful steps to improve the statutory framework of protection for people experiencing debt, this lack of practical support at a time of crisis has been difficult to understand.

The spike in living costs comes on top of household incomes only just beginning to recover from the body blows that many experienced during the pandemic. However hard our advisers work to help people, and however much we try to encourage people to turn to us before their debt reaches crisis point, we’re going to be seeing some serious consequences. More people will need to use insolvency solutions because they’ve already exhausted their savings and won’t have enough money to repay their debts. More people will struggle to meet their families’ essential needs. The Government is, in our view, undoubtedly going to need to provide a lot more support – even if it hasn’t yet recognised this.

Although energy costs aren’t the only culprit, they are a really significant driver. Nearly a quarter (23 per cent) of clients who would have had a positive budget without the energy price rise could now face a negative budget as a result of it. If the October price cap reset continues the upward trajectory of energy pricing, all these metrics will worsen further. StepChange projects that, under current pricing expectations, by October clients could typically be spending £1 in every £6 of their income on energy bills.

We’ve already been seeing a trend over a number of years toward debt hitting poorer households hardest. We used to be able to help the vast majority of the people who turned to us resolve their debt problems by working with their creditors to reschedule payments over longer periods.

However, more people seeking help now have low incomes, arrears on priority debts, and simply not enough surplus to repay their debt over a reasonable period. These are not households who can cut back on discretionary spending and get by with a bit of belt-tightening. They’ve often already been doing that, for ages. The less income you have, the bigger the proportion of it that you have to spend on the bare necessities.

If there’s any silver lining to the current situation – and it’s a stretch to suggest that there is – it can only be that the stigma of being in debt should be well and truly blown away. People who’ve never experienced debt can see and understand the lack of control that people have over their own financial situation under current conditions. Typically, people experiencing problem debt are in that situation of not having control over events.

Historically that’s been because of a bereavement, a job loss, an illness, an unforeseen expenditure need. We must now add to that list a dramatic increase in the cost of living. Yet there are practical things that the Government could do, quickly, that would cushion the blow to some of the worst affected households in the short term.

If inflation is over six per cent but your income only rises by 3.1 per cent as is the case for people relying on Universal Credit or other benefit income, falling behind almost looks hardwired in.

Having decided not to increase the benefit uprating to match inflation, the Government could at least now pause deductions from benefits for Government debt collection, ensure that bailiffs are not called in to enforce unpaid Government debts, and lead by example on trying to implement humane flexibility on debt collection in these difficult times.

Phil Andrew is CEO of the Yorkshire-based StepChange Debt Charity.