Nearly 30% of people facing debt were in energy arrears before the cost of living crisis

Almost half a million people needed debt advice for the first time in 2021, with nearly 30 per cent already in arrears on their energy bills before the cost of living crisis.

The figures from debt help charity StepChange show that households across the UK were already facing a financial emergency in the wake of the pandemic, before costs began to soar at the end of last year.

“The numbers speak for themselves,” said Richard Lane, director of external affairs for the organisation. “It’s impossible to look at the characteristics of our clients and their debts in 2021 and not conclude that more help is needed. 

“When so many people are already struggling to make ends meet, a steep rise in the cost of living means debt becomes inevitable for many,” he added. “Debt advice services this year are going to be vital to help people navigate their best options for managing a difficult situation – but government needs to implement better structural support, too.”

Nearly 40 per cent of the 483,247 people who first approached StepChange for debt support last year were experiencing mental health problems, according to the data.

The number of people who had fallen into arrears on their electricity and gas bills last year – 28 per cent and 23 per cent respectively – was significantly higher than before the Covid-19 crisis when the equivalent figures were 17 per cent and 13 per cent. 

The extent of energy bill arrears across the country is likely to get much worse in the coming months, StepChange said, after the energy price cap increased by 54 per cent and added £700 to average annual bills.

Council tax – which also increased for most households this month – was already the biggest driver of debt, with 37 per cent of people supported by the charity last year in arrears to their local authority.

Around half of people forced to use food banks are in debt to the government, according to Trussell Trust figures published earlier this year, mostly through sanctions on their benefit payments.

This is going to be a “tough year for many”, Lane added, “and not just because of energy prices”.

“We can see that the financial impact of the Covid pandemic was still being felt among many of our clients last year, and this is now being exacerbated by cost of living pressures,” he said.

“If things go on as they are, we could see the proportion of our clients who have a negative budget rise from around a quarter to more like half.”

Around one in every 250 people in the north east of England sought help from StepChange last year, compared to one in every 333 people in London.

Ministers’ inaction will mean “a prolonged hangover of household debt problems that will hamper society and the economy for years,” Lane said.

“A start would be central and local government pausing deductions and halting debt enforcement and the use of bailiffs where households are vulnerable and unable to pay.

“Government will also need to provide more targeted support this year to help the most financially vulnerable households bridge the gap between their essential costs and their incomes.”

Ministers came under fire earlier this year for changing the universal credit rules to mean a person only had four weeks – down from three months – from first claiming the benefit to find a job in their chosen field or face sanctions, which have been linked to higher debt and food bank use.