More clients, more distress, more action needed

By Josie Warner, Senior Research and Insight Officer

Our latest mid-year statistics update may be dominated by the headline record number of 331,337 people contacting the charity in the first half of this year, but there are many other worrying statistics lurking under the surface. They throw into sharp relief where the problems lie that urgently need solving.

The overall debt landscape

We’ve seen worrying trends becoming entrenched, such as increases in certain client groups such as younger people and single parents. However, the reasons why people are falling into debt reflect longstanding concerns.

Our latest statistics show that people most often require help with their debt situation due to experience of income or life shocks, such as unemployment or redundancy, injury or illness or a reduced income, which have long been among the top recorded reasons for debt for our clients. This is why we’re undertaking work concentrating on what could break the logjam to increase financial resilience in the wake of unforeseen events.

Council tax

Almost one third (31%) of all new clients in the first half of 2019 with a responsibility for paying a council tax bill were behind on at least one council tax payment. The charity saw an increase in clients with this arrears type between 2013 and 2014 (25% to 28%), which coincides with the removal of the national scheme of Council Tax Benefit. Since 2014, council tax has continued to be the most common arrears type among StepChange clients.

Use of aggressive and intimidating bailiff action is commonplace for council tax collection, which is why the high proportion of clients in council tax arrears is alarming.

Earlier this year the Government announced, as an interim measure following its review of bailiff regulation, that enforcement agents will have to wear body cameras to reduce the risk of intimidating tactics. However, we’re still awaiting a full response from the Ministry of Justice on what other measures will be taken. In our view, anything short of the proper, independent regulation of bailiff firms (which is currently non-existent), and a clear and effective complaints and redress scheme will not be good enough.

While it goes without saying that local authorities also need to up their game in terms of sensitive and appropriate debt collection practice, this needs to go alongside appropriate regulation of bailiff firms and cannot be a substitute for it.

Clients in vulnerable situations

We’re also worried by the proportion of new clients whose situations make them vulnerable, in addition to their financial difficulty. Our latest stats reveal that 43% of our new clients are in a vulnerable situation.

These situations include mental health conditions, which affect half (50%) of all clients in vulnerable situations, as well as physical health difficulties, learning disabilities, hearing or sight impairment, inability to speak or read English and anything else which may make dealing with a debt problem additionally challenging for a client to handle.

We do see some notable differences between our vulnerable clients and all clients. Vulnerable clients are more likely to have lower debts, be in arrears and be single and without children compared to the full client population.
Compared to just 21% in 2017 and 36% in 2018, the proportion of clients we identify as vulnerable has increased dramatically. However, this rise is likely to reflect previous under-reporting, rather than a seismic shift in the vulnerability profile of clients seeking advice.

We’re improving our ability to identify who is in a vulnerable situation during a debt advice session, in line with practice reflected across the debt, utilities and financial services sectors. Providing the appropriate support for consumers in vulnerable situations is becoming a higher priority for many organisations and regulators, which can only be a good thing, but our data suggests that vulnerability is still far too closely associated with problem debt.

Single parents

Over the past five years, the proportion of our clients who are single parents has increased by 6%, a higher percentage increase than any other family compositional group. In the first half of 2019, one quarter (24%) of new clients were single parents, which is far higher than the UK average of just 6% (ONS) of all GB adults.

Although single parent clients have on average lower debt amounts than the average for all clients, this group are far more likely to be renters (90%) than any other family group and are more likely to be in a deficit budget. It seems likely that these characteristics will be contributing to why this group is over-represented when compared to the wider population. Additionally, 85% of single parent clients are women, which is potentially driving the increasing proportion of women (61%) among our clients.

We need a more comprehensive understanding of why we see such a large proportion of single parents contacting us for advice, and we’ll be working with single parent charity Gingerbread to explore this in more depth. This will help us understand why there has been a substantial increase in the proportion of single parent clients, and what the main debt issues surrounding this group are, so that we can better identify what changes might be needed to mitigate their problems.

Credit cards

Almost seven in ten clients (68%) have at least one credit card debt and the proportion of clients with this debt type has been increasing over the past few years. Credit cards are easily accessible forms of credit for many. The flexibility, availability and generally low repayments can make them seem an appealing option for those who are financially stretched, but as our recent research identified they can be a trap.

The FCA’s rules on persistent credit card debt have now taken effect, and from early next year some people will find that they are no longer able to borrow on their cards — so we’re keeping a particularly close eye on this part of the market. It may well bring to light hidden debt problems that are currently being juggled by people unable to claw their way out of persistent credit card debt without help as a result of underlying financial difficulty.

Energy arrears

We’ve seen the proportion of clients with electricity arrears increase in the first half of this year (18%) compared to 2018 (16%). The proportion of clients with gas arrears has also increased from 12% in 2018 to 13% in the first half of 2019.

This is in line with what others elsewhere have been seeing, with Ofgem also reporting increases in levels of arrears in gas and electricity bills across the sector. Ofgem has also reported that the proportion of customers across the sector setting up payment plans has been falling.

It’s therefore vital that people who fall behind are supported to set up affordable cases, and it’s alarming that Ofgem aren’t seeing this in a number of cases. As a charity, we’re looking at how we can help streamline our clients getting more affordable energy repayment plans.

Debts to family and friends

We’ve seen an 11% increase in the proportion of new clients with debts to family or friends over the past five years. In the first half of 2019, one third of clients (33%) owe money to at least one family member or friend, compared to just 22% in 2014. As our recent report Life Happens reported, when a life shock occurs — such as becoming unemployed, bereavement, or experiencing an injury or illness — many people turn to financial support from family or friends.

However, not only does the financial support from family and friends often fail to fully address the problem, it can also leave the person who has offered the financial support vulnerable themselves to financial difficulty. Recent data from the Financial Ombudsman Service about the prevalence of problems in the guarantor loans market is another manifestation of this problem.

What are the solutions?

Data can be hugely valuable in identifying the problems, and pointing the way towards possible solutions. All the trends we’re currently seeing through our data are reflected in policy work that we’re doing to help identify not only how we as a charity can extend or improve or services, but also what regulators, government and creditors can do to reduce the risk and harm of problem debt.

Specifically, our data has helped to make the case for the new Breathing Space scheme that now needs regulations to be finalised so that it can begin to make a positive difference from 2021. Our data has also helped to inform the approach being taken by the FCA on high cost credit, credit cards and overdrafts. We now need the government to take notice of our data (and that of others) to improve government debt collection practice and, urgently, to put in place proper bailiff regulation.

In the meantime, no one should forget that behind the data sit hundreds of thousands of real people, every year, each grappling with problem debt. Their stories, individually and collectively, help to frame our campaigning work as well as our own services.

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StepChange Debt Charity

StepChange Debt Charity

We provide free, impartial debt advice and solutions to anyone struggling with debt problems in the UK.