300,000 more households using high-cost credit

The charity’s latest research identifies three distinct groups of those living on lower incomes in the UK, and recommends tailoring responses to meet each group’s needs, recognising their varying abilities to pay credit off.

Using the Joseph Rowntree Foundation’s minimum income standard (MIS) as a benchmark, these comprise an estimated eight million people living just below the MIS (75% of MIS or more); around 11 million people living on less than 75 percent of the MIS (which broadly correlates to the official poverty line, of 60 percent of median income) and; within these, around 1.25 million people on such low incomes that they are living in “destitution”, without the income necessary to meet basic needs on a regular basis.

For the eight million living just below the MIS, StepChange suggests credit unions and community lenders offer a potential credit solution. However, it suggests the challenge with this group is to increase the scale and reach of the finance providers, so that there is enough capacity to meet the need.

For some of the eleven million on 75 percent or less of the MIS, the charity’s report suggests that scope exists to design an affordable loan scheme which could be feasible if the loans were ultra-low or no-cost, and structured to allow for flexible repayments.

It cites schemes such as the Good Shepherd No-interest Loan Scheme, a joint initiative in Australia between the government and National Australia Bank, delivered through local providers, demonstrates that ultra-low cost credit provision is possible. The charity is calling on the UK government to explore providing a similar scheme.

For the poorest 1.25 million households whose income levels are so low that no form of repayable credit is realistic, StepChange is arguing that grants and support services need to be made more widely available, through increased and more secure funding for local welfare provision.

Grace Brownfield, senior public policy advocate at StepChange Debt Charity, said: “We must undoubtedly keep expanding the provision of credit unions and similar, but we need to look beyond this too.

“The government and the Financial Conduct Authority (FCA) need to look creatively at working with businesses to provide low- and no-interest loans, learning from successful schemes in Australia and elsewhere, while recognising the need for the welfare system to provide better emergency support for those who need it. Such an approach could truly transform the options available to those on low incomes and break the vicious debt spiral that high cost credit all too often creates.”