Facing economic headwinds that will wreck millions of household budgets in the months ahead, the country’s poorest families are acutely vulnerable and exposed. Speaking to the House of Commons Treasury committee on Monday, the chair of the Office for Budget Responsibility confirmed that welfare benefits will lag significantly behind inflation for the next 18 months. The Resolution Foundation thinktank estimates that the cost-of-living squeeze will force 1.3 million people into absolute poverty next year, including 500,000 children. The incomes of the poorest quarter of households – the vast majority without savings to fall back on – are set to plummet by 6% in real terms.
Providing next to nothing by way of direct support and mitigation, Rishi Sunak’s spring statement left these families to fend for themselves. To link benefits to the rising cost of living was just not “doable”, Mr Sunak told the Treasury committee. That is a political choice that, as a new study from the Centre for Social Justice makes distressingly clear, will exact a high toll in human misery; if the state refuses to provide an adequate safety net, predators will move into a world where desperate people resort to increasingly desperate measures.
According to the CSJ report, Swimming With Sharks, over a million people in England are in debt to illegal and unregulated money lenders – 700,000 more than the last official estimate in 2010. Scammers, false “friends” who turn acquaintances into revenue streams and small-time mafiosi on housing estates have come into their own amid the economic fallout of austerity and the pandemic. The vast majority of loan shark victims have an income below £20,000, already owe money to legal creditors and are on benefits. Many use food banks, while almost half told interviewers that everyday costs – and in particular utility bills – drove borrowers to accept crippling and arbitrary terms, trapping them in a vicious cycle of never-ending debt. In harrowing case studies, the CSJ records grotesque physical and psychological abuse of those unable to meet repayments stretching indefinitely into the future. One young mother, harassed and badgered even while in hospital, was intimidated into paying back £1,000 for a £60 loan to buy a pram. More than one in 10 loan shark victims were found to have contemplated taking their own life at some point.
Amid steepling food and fuel prices, and government inaction, this cohort of the panicked poor will exponentially expand as a perfect economic storm breaks. In the medium term, better solutions must be found to allow affordable access to credit for households at risk of going under financially. Expanding the scope, powers and profile of non-profit credit unions, as the CSJ report suggests, must become a policy priority. Greater resources for the government-funded Illegal Money Lending Team, which investigates and prosecutes illegal lenders, are also needed. But in the short term, there is a stark ethical imperative to boost the incomes of the least well-off now.
This newspaper does not often agree with Sir Iain Duncan Smith, the founder of the CSJ. But he is right to say that, without urgent action, the scourge of loan sharks will become a shaming “sub-crisis”, as living standards drop faster than at any time since the 1950s. It is Mr Sunak’s responsibility to prevent this happening. The chancellor must be held morally accountable if he does not do so.
