The Government has set up a Child Poverty Taskforce to develop a new Child Poverty Strategy and the Taskforce's objectives include tackling problem debt.
StepChange prepared a briefing for the Taskforce highlighting evidence that families with children disproportionately experience problem debt. Mothers—and particularly single parent mothers—are particularly exposed to debt problems.
Poverty drives problem debt because those with low incomes are more likely to fall behind on household bills and/or borrow to pay for essentials, leading to unaffordable debt. Problem debt can also cause or worsen poverty because debt repayments reduce income below poverty thresholds. Poverty and problem debt frequently become self-reinforcing, driving a cycle of hardship and borrowing.
Poverty also leads to debt problems because it makes people less financially resilient—for example, in the form of savings—and more likely to be exposed to negative life events such as unemployment, illness or relationship breakdown that are frequent triggers for debt problems.
Poor national and local government debt collection policy, particularly through council tax debt collection and unaffordable debt deductions from Universal Credit, drives people into hardship, worsens debt problems and undermines financial resilience.
Key priorities for the Government’s child poverty strategy to reduce problem debt and poverty include:
- introducing financial resilience metrics as part of revised child poverty targets;
- setting out a long-term strategy to increase income through:
- removing the two-child limit and benefit cap;
- committing to uprate non-pensioner benefits in line with inflation or earnings, whichever is higher;
- re-introducing the family element of Universal Credit; and
- childcare reforms and a wider package of support to remove barriers to work and in-work progress for parents.
- reducing essential costs for families:
- re-linking Local Housing Allowance to the 30th percentile of rents;
- increasing funding for council tax support to enable local authorities to re-establish 100% discounts; and
- introducing a social tariff in energy, beginning with consideration of expansion of the Warm Home Discount scheme from 2026
- reforming harmful government debt collection practices, prioritising reform of local council tax debt collection practices and the system of debt deductions from Universal Credit;
- supporting families to build financial resilience by expanding support for rainy day savings and increasing access to credit alternatives through a permanent crisis support system building on the Household Support Fund; and
- developing a strategy to create more integrated, holistic advice services to help parents address debt and other problems, maximise income and build financial resilience.