‘II’ve had nurses and teachers calling me,” says Sally Marshall, when asked if the financial strain caused by the cost of living crisis was changing who called the helpline she answered for. debt charity StepChange.
The heart of the charity is made up of the country’s poorest 20% of households, but the dramatic rise in the cost of living over the past year means more middle-class Britons are struggling to keep your head above water.
They tell Marshall: ‘My energy supplier asked me to call you because my direct debit was £150 and it went up to £350.’ The debt adviser, who is based in the charity’s Chester office, said: ‘That £200 has to come out of their food or clothes for the kids.
January is usually the busiest month of the year for organizations such as StepChange, as bills arrive for credit cards and other forms of borrowing that have covered the cost of Christmas.
However, StepChange, the UK’s largest debt advice charity, has already seen a surge in demand. Its most recent data, for October, showed that customer volumes were up 17% from a year earlier. An ‘increase in the cost of living’ is now the most common cause of debt, with a fifth giving this reason, and of those, seven in 10 are women.
“We’re starting to see signs of what you might call more middle class or people higher up the income scale who are being dragged into financial hardship,” says Peter Tutton, policy manager at StepChange.
“That’s what you’d expect with a huge increase in fuel bills and other costs and most people at work getting pay raises below inflation.”
It’s not hard to see why nurses, who in some home countries recently staged a strike, along with millions of others, might be struggling with the cost of living. UK public sector wages rose 2.7% in the year to October, according to the Office for National Statistics, and 6.9% in the private sector.
The overall rate of wage increase for all workers excluding bonuses reached 6.1%, but when adjusted for inflation, wages for all workers fell by 2.7%, reducing living standards in period of financial stress.
Indeed, a growing number of StepChange clients are working full-time, with the charity also seeing a slight increase in the number of homeowners coming into contact, with housing debt expected to be a particular pressure for households in 2023 due of rising interest rates. .
As Christmas approaches, around 1.9 million households have not made at least one mortgage, rent, loan, credit card or other bill payment, according to a Which? survey. The most common type of missed bill was energy, at 2.3% of households, followed by council tax at 1.9%.
With rows of spotless desks and telephones with headsets, StepChange’s office in Chester feels like a call centre. However, rather than complaining about poor customer service, the caller explains the events that brought him to this point of financial crisis: an attempt to reorganize a pile of debt stuck in bureaucracy; a station wagon seized due to an unpaid utility bill.
To better understand the financial pressures caused by the cost-of-living crisis, the Guardian was allowed to listen to the calls – but not to report any personal details.
The average pile of unsecured debt is £13,500 and those seeking help must share details of problem credit cards and loans along with income and expenses so the charity can create a budget . However, this exercise increasingly reveals that they do not have enough money to live on, let alone reserve money to make repayments.
These households have what the charity calls a “negative budget”, meaning that even after debt counseling and budget advice, their income is not enough to meet their essential expenses. In 2021, approximately 27% of the organization’s customers were in this situation, but at the end of 2022, this figure was 33%.
Right now, negative-budget customers, as well as people with higher incomes, are the themes popping up in his data due to the cost-of-living crisis, Tutton says. Negative budgets are a real cause for concern, he says, “because it means we can’t prevent their debt problems from getting worse.”
Those with higher incomes may have made minimal monthly payments on loans or credit cards but struggle to cope when energy bills become a priority, says Julie McElroy, an experienced energy advisor. debt to the charity.
“Suddenly they have this gas and electricity bill that they have to pay first,” she says. “So that’s budget advice on, well, actually to be able to follow, you won’t be able to pay your credit cards. Right now, they’re juggling everything.
“We’re doing a lot more education to kind of say, ‘Okay, well, you have Sky, for example, and you might have to cut that to pay for your gas and electricity. Some people haven’t had to make these decisions before because they were fine.
She worries about the rise of “buy now, pay later” via companies such as Klarna and Clearpay, and predicts an increase in calls about BNPL in January “because I think a lot of people are funding Christmas there- above “.
McElroy also receives calls from people who are not in debt but are afraid of the future. “I’ve talked to people who use candles, who don’t light the stove, because they’re afraid of the bills. We are preparing more budgets for people who are not in debt but who know they will get into debt.
Another emerging theme is that of prepayment meters, as energy providers transition struggling households to pay-as-you-go. Callers complain that even after making drastic cuts, they are stuck with high loads.
“We have really difficult conversations with people where they say, ‘I don’t turn on the lights, I don’t turn on the heat, or I use the oven,’ and we have to say, ‘You need to heat and you have to eat,” she says.
McElroy says that whereas previously many of the calls she handled were about credit cards or loans, they were increasingly about housing. Changes to the welfare system have made this cost more difficult to cover, she says. “You now have the tourist tax and the housing tax that you never had to pay if you received allowances.”
After a year of dealing with higher living costs, some people are maxed out. “If you’ve used all your lines of credit, what do you have left?” McElroy said.
“The loan sharks” is Marshall’s depressing response. She handled more calls on the subject in 2022 than in the previous four years. “The loan sharks were mentioned maybe once a year, and I’ve heard of three in the last two weeks.”
As the UK enters recession, mortgages and rents rise and the energy price guarantee becomes less generous from April, consumers will come under increased financial pressure in 2023, and it is possible that the debt landscape becomes very concerning, says Tutton.
“What really worries us is that we will see more people who, even after getting budget advice, even after getting every possible source of help, will struggle to make ends meet.
“If we see particular groups struggling and more customers with negative budgets, then the government will have to rethink how to support the most vulnerable financially to prevent people from going to a place where heating is not enough. and eat. It’s not being able to do enough either.