New research report ‘The single parent debt trap’ published by Gingerbread and StepChange, the UK’s leading debt charity, reveals that single parents are more likely to be living with problem debt. The research also shows that the COVID-19 pandemic has acted as an accelerant for problem debt, exposing more single parent families to poverty.
Single parents disproportionately experience problem debt: prior to the COVID-19 outbreak, 13% of single parents were in severe problem debt. This compares to 5% of couple parents and 4% of single adults. In 2019, 24% of StepChange Debt Charity advice clients were single parents, compared to 6% of UK households (StepChange Debt Charity, 2020).
The report is based on national polling of both single and couple parents conducted by Savanta ComRes, an online survey completed by single parents, as well as case study interviews.
Key Findings – causes of problem debt:
The research found that single parents are exposed to a high number of risk factors and potential triggers for problem debt. The majority (85%) of single parents struggling with problem debt cite more than one cause that fall under the following categories:
- A challenging combination of poverty, income insecurity and ‘lumpy’ expenses: 82% of single parents in problem debt cited “not enough income to meet living costs” as a reason for using credit – single parents were also unable to work their way out of poverty and debt. In fact, working more hours actually increased the likelihood of single parents experiencing problem debt.
- Financial problems following relationship transitions: 44% of single parents said relationship breakdown or divorce was a reason for being in problem debt. Financial difficulty can contribute to (or is present during) relationship breakdown – and single parents often inherit arrears and debt.
- Economic abuse: around half (48%) of single parents in our survey sample had experienced some form of economic abuse by a former partner. Economic abuse drives a range of financial problems, including dealing with substantial arrears and debt.
- Life shocks: low financial resilience means that single parents are particularly exposed to problem debt following unexpected life shocks. Like any other household, single parents are exposed to a range of such risks but tend to have fewer resources and are, therefore, forced to use credit. Life events feature prominently in the reasons single parents cite for being in problem debt, including illness or disability (28%), moving home (17%) and unemployment (15%).
- COVID-19: COVID-19 has had a negative impact on single parent’s household finances. 49% of single parents reported taking on more debt since the start of the pandemic. Similarly, the average amount of debt held by single parents increased by around 15% during the pandemic (an average of more than £600 in additional debt per household).
Key Findings – impact of problem debt:
The negative impacts of problem debt on single parents are serious and wide-reaching. For example:
- 66% of single parents had to cut back on food for themselves as a result of making debt repayments.
- 20% of single parents had to cut back on food for their children as a result of making debt repayments.
- 19% of single parents in problem debt had recently used a foodbank, compared to 12% of those not in problem debt.
- 69% of those in problem debt suffered from a mental health issue, compared to 53% for those not in problem debt.
Problem debt is not an inevitable part of the experience of being a single parent. Debt of this sort is driven primarily by linked issues of poverty and low financial resilience. Action in these areas will have a particularly positive impact for single parents.
The report recommends a set of priorities for government and others to better support single parents and, by extension, financially vulnerable families affected by problem debt:
1. Ensure single parents have sufficient income to make ends meet
In the short term, the government should prioritise protecting incomes during the downturn driven by COVID-19 by maintaining the £20 per week uplift to UC, extending it to legacy benefits and considering a targeted increase to the child element of UC and tax credits.
The government should target reducing deep and persistent poverty among single parent families by removing the Benefit Cap.
One of the key factors for single parents in enabling them to work is the availability of low-cost and reliable childcare. The government should support working parents receiving Universal Credit by increasing the caps on the childcare element of UC and introducing a mechanism through interest-free budgeting advances to meet upfront childcare costs.
The Child Maintenance Service:
Many single parents rely on child maintenance payments in order to provide for the basic needs of their children. However, children are often forced to go without essentials as a result of their parent not receiving the child maintenance payments they are entitled too. The Department for Work and Pensions should reform the CMS by:
- Using best practice standards in responsible debt collection to increase the amount of child maintenance payments collected from parents who attempt to avoid or minimise payments;
- Removing charges for receiving parents, including the initial £20 enrolment charge and 4% surcharge for the Collect and Pay service; and
- Working with expert stakeholders to make improvements to the service for survivors of domestic abuse who experience ongoing attempts to control their finances.
The Minimum Income Commission:
In the long term, the government must seek to link state support for families to real living costs: we support the call for a Minimum Income Commission, similar in design to the Minimum Wage Commission, to be established with a statutory remit to advise the government on relinking the value of social security payments to living costs.
2. Support single parents to be financially resilient and have access to safe and affordable credit options
One of the key factors affecting the financial resilience of single parents is the uneven or unpredictable nature of UC payments. As UC is developed in future, the government should seek to improve the stability of payments and better support those experiencing financial difficulty through a reformed system of deductions to meet priority debts. The government should seek to link Help to Save more closely with UC and use learning from the roll-out of Help to Save to explore how the scheme can be developed to overcome savings barriers for households with low incomes that need to build and maintain access to an emergency savings fund.
As part of its financial inclusion programme, the government should work with stakeholders to develop an affordable credit strategy addressing gaps in need for financially vulnerable households, including low-cost affordable credit, a national no-interest loan scheme and grants to meet essential costs for those for whom credit is unsuitable.
3. Prevent economic abuse and supporting survivors
Many single parents have suffered or continue to suffer economic abuse, which can push them into problem debt. Regulated firms and advice providers should use new Financial Conduct Authority vulnerability guidance to scrutinise and improve how effectively their products and services work to prevent, identify and end economic abuse – and support those who are struggling with financial difficulty and/or coerced debt as a result of an abusive relationship.
The new Domestic Abuse Commissioner should consider bringing together stakeholders to clarify the legal and regulatory changes necessary to ensure survivors of economic abuse are released from liability for unsecured debt where the liability arose from economic and/or physical abuse.