Hundreds of thousands of people will be tipped into serious debt this year even if the furlough scheme is extended, say economists.
The pandemic is expected to push up to 480,000 additional households into debt that leaves them unable to pay off credit, rent, utility and council tax bills, according to research by Pro Bono Economics, which supports charities and social enterprises and is chaired by Lord O’Donnell, the former cabinet secretary.
In a worst-case scenario, the total number of households pushed to the edge by debt would rise by 43 per cent to 1.5 million by the middle of the year. Young people are likely to be badly hit, with 16 to 24-year-olds potentially accounting for about half of those newly unable to pay bills and debts.
Economists said that much of the rise in households thrown into difficulty stemmed from expectations about unemployment, but falls in income for those still in work, associated with furlough, pay cuts and fewer hours, would account for 140,000 of the total increase. An anticipated extension to the furlough scheme beyond the end of April would not be enough to protect households.
Matt Whittaker, chief executive of Pro Bono Economics, said: “While the furlough scheme has been a lifeline for jobs, many workers have still had to contend with sizeable pay cuts. For those already close to the edge ahead of the pandemic, such a sustained drop in income is inevitably leading to problems with bills and with debts that grow sharper with each passing day.”
Rishi Sunak, the chancellor, is said to be considering planning to extend the £20 temporary increase in universal creditRishi Sunak sets out his case for tax increases in this weeks budget for a further six months.
The costs to society of problem debt are likely to exceed £1 billion this year, with the taxpayer picking up the cost of mental health support and housing provision, the research found.
Whittaker said: “Providing support for those individuals and families at the sharp end of the labour market shock . . . makes sense from an economic perspective because it will help to reduce the taxpayer costs associated with dealing with the fallout from any surge in problem debt.”