‘IThey had nurses and teachers calling,” says Sally Marshall, when asked if the financial pressure caused by the cost of living crisis is changing who calls the helpline that answers for debt charity StepChange.
The heart of the charity is the poorest 20% of households in the country, but the dramatic jump in the cost of living over the past year means more middle-class Britons are struggling to keep their heads above water.
They say to Marshall: “The energy supplier asked me to call you because the fixed charge was £150 and it went up to £350.” The debt adviser, who is based in the charity’s Chester office, says: “That £200 should come out of their food or clothing for the children.”
January is usually the busiest month of the year for organizations like StepChange as bills arrive for the credit cards and other forms of borrowing that covered the cost of Christmas.
However, StepChange, the UK’s largest debt advice charity, has already seen a big increase in demand. Its most recent figures, for October, showed that customer volume was up 17% compared to the previous year. The “rising cost of living” is now the most common reason for debt, with one in five giving this reason, and among those people, seven out of 10 are women.
“We’re starting to see some signs that what you might call more middle class or people higher up the income ladder are being drawn into financial hardship,” says Peter Tutton, head of policy at StepChange.
“This would be expected with a huge increase in fuel bills and other costs and most workers receiving below-inflation pay rises.”
It is not difficult to see why nurses, who in some of the home nations have recently gone on strike, along with millions of others, may be struggling with the cost of living. UK public sector wages rose by 2.7% in the year to October, according to the Office for National Statistics, and 6.9% in the private sector.
The nominal rate of pay increases for all workers excluding bonuses came in at 6.1%, but when adjusted for inflation, pay for all workers fell by 2.7%, reducing living standards at a time of economic stress.
Indeed, an increasing number of StepChange clients are working full-time, with the charity also seeing a small increase in the number of home owners coming into contact, with housing debt expected to be a particular pressure facing households in 2023 due to higher interest rates.
In the run-up to Christmas, an estimated 1.9 million households missed at least one mortgage, rent, loan, credit card or other bill payment, according to Which? overview. The most common type of bill missed was energy, at 2.3% of households, followed by council tax at 1.9%.
With rows of spotless desks and handset phones, the StepChange office in Chester has the feel of a call centre. However, instead of complaining about poor customer service, the caller explains the events that brought him to this point in the financial crisis: an attempt to reorganize a pile of debt that is blocked by red tape. family car impounded due to unpaid utility bill.
To better understand the financial pressures caused by the cost of living crisis, the Guardian was allowed to listen to calls – but not to reveal personal details.
The average unsecured debt is £13,500 and those seeking help must share details of problem credit cards and loans, as well as income and expenditure, so the charity can create a budget. However, increasingly this exercise reveals that they do not have enough money to live on, let alone cash to make their repayments.
These households have what the charity calls a ‘negative budget’, meaning that even after debt advice and budgeting advice, their income is not enough to cover their basic outgoings. In 2021 about 27% of the organization’s clients were in this situation, but by the end of 2022 this figure was 33%.
Right now, customers with negative budgets, as well as people with higher incomes, are the themes that appear in her data because of the cost of living crisis, Tutton says. Negative budgets are a real concern, he says, “because it means we can’t stop their debt problems from getting worse.”
Those on higher incomes may have made minimum monthly payments on loans or credit cards, but struggle to cope when energy bills become a priority, says Julie McElroy, an experienced debt adviser at the charity.
“All of a sudden they’ve got this gas and electric bill that’s a priority to pay,” he says. “Well, it’s budgeting advice about, actually, to be able to keep going, you’re not going to be able to pay off your credit cards. Right now they are juggling everything.
“We’re trying a lot more to say, ‘Right, well, you’ve got Sky, for example, and you might have to cut it to pay your gas and electricity.’ Some people didn’t have to make those decisions in the past because it was okay.”
He worries about the rise of “buy now, pay later” through companies such as Klarna and Clearpay and predicts an increase in calls for BNPL in January “because I think a lot of people are funding Christmas for that”.
McElroy also gets calls from people who have no debt but fear for the future. “I’ve spoken to people who use candles, who don’t put the kitchen on because they’re afraid of the bills. We’re doing more budgeting for people who don’t have debt but know they’re going to get into debt.”
Another emerging issue is prepaid meters, as energy suppliers switch struggling households to pay-as-you-go. Callers complain that even after drastic cuts, they are hampered by high charges.
“We have very difficult conversations with people where they say, ‘I’m not turning on the lights and the heat or using the oven,’ and we have to say, ‘You need to warm up and you need to eat,'” he says.
McElroy says that while previously many of the calls she handled were about credit cards or loans, more and more are related to housing. Changes in the welfare system have made it harder to cover those costs, he says. “You now have bedroom tax and council tax that you didn’t have to pay before if you were on benefits.”
After a year of dealing with the higher cost of living, some people max out. “If you’ve used up all your credit limits, what’s open to you?” says McElroy.
“Loan sharks” is Marshall’s depressing response. It has handled more calls on the issue in 2022 than in the previous four years. “The loan sharks used to get a report once a year and I’ve heard of three in the last two weeks.”
With the UK heading into recession, mortgages and rents rising and the energy price guarantee becoming less generous from April, consumers will be under more financial pressure in 2023 and the debt landscape is likely to become very worrying, says Tutton.
“The concern really is that we’re going to see more people who, even after budget counseling, even after they have all the sources of help they can get, are going to struggle to make ends meet.
“If we see particular groups struggling and more customers on a negative budget, then the government will have to think again about how to support the most vulnerable financially to stop people going into a place where it’s not just heating and food. It can’t do enough of either.”