The five-week wait will push people deeper into debt
Despite some welcome signs of economic growth, many low and middle income families remain on a financial edge. Four years of below-inflation wage growth have seen millions struggle to make their income last from one pay cheque to the next.
As a debt charity, we’ve seen a four-fold rise in the number of people we help who are shackled with expensive payday loan debts in just two years. But this is just the tip of the iceberg: based on the findings of a major YouGov survey we commissioned in 2013, we estimate that some six million people used credit to last until payday and three million used credit to keep up with essential bills.
Credit is picking up the slack where safety nets fail. Income shocks, whether people losing their jobs or seeing the hours cut, are the main explanation for how people end up falling into a spiral of debt.
But for some – particularly those on the lowest incomes – simply using credit to pay for essentials one month can see a bigger hole in next month’s budget, which only more credit can fill.
The group that stand at greatest risk of falling into the ‘debt trap’ are those in insecure work – on zero hour, short fixed-term or temporary contracts. Some 23% of those in insecure work would not have enough savings to keep up with their essential costs for a week if their income dipped by a quarter.
The proposal to make people wait five weeks for JSA and ESA is yet more bad news for those at risk of losing their job. Every irregularity in income tips people closer to using credit because they won’t get the support they need to cover their costs.
Relying on credit leads to deeper debt, which can see financial problems become more entrenched. More than half of our clients found that their work was affected by their debt, including 2% who say they’ve lost their job as a result. The ‘credit safety net’ doesn’t do what a good safety net should: help people to bounce back from hard times.
As individuals shoulder more and more economic risks, the social security safety net needs to respond more quickly – not less.
But even then, social security support is unlikely to be sufficient for people to keep up with high essential costs without turning to credit.
StepChange Debt Charity wants to see a new right to temporary support from essential service and credit providers, so that hard-pressed families can better avoid the pressure that tips them into deeper difficulty.
Only with a responsive social security safety net, and more certain temporary help with bills, can we help families avoid the perils of problem debt.
Saving Our Safety Net is a new campaign from the TUC that aims to defend a decent welfare system that provides help to those who need it, when they need it. You can find out more at the www.savingoursafetynet.org