Cost of living crisis: 10 years of Tory benefit cuts are driving people deeper into debt

Sanction centre: people paying back debts to the benefit system are being penalised for being poor by the current Tory cost of living crisis because their situation forces them into the hands of high-interest doorstep lenders who will make their situation worse. Isn’t the benefit system supposed to keep people out of debt?

It is amazing that this has to be spelt out for people but, with us all having to deal with the Tory squeeze on our incomes, this may have evaded a few people.

The cost of living crisis has hit the poorest people and families worst, with people on benefits suffering the worst after 10 long years of punitive Tory cut after punitive Tory cut.

The Resolution Foundation has already pointed out that the poorest households are facing a higher rate of inflation than richer people.

This is because the rising cost of home services (like energy bills), transportation and food is having a greater effect on people with less income and fewer savings to pay for them; it’s not rocket science.

So the headline inflation rate for the lowest tenth of families is around 10.3 per cent, while it is 8.7 per cent for the richest tenth. This is the greatest disparity since cost of living data began to be collected at the start of this century.

Now the Joseph Rowntree Foundation has produced a study showing that a decade of social security cuts, underfunding, and punitive government debt collection terms are pushing low-income families – particularly benefit claimants – into financial crisis.

In many situations, people were forced to choose between feeding their loved ones and making their rent payments on time, as described in the study. 2.3 million homes had already gone without both.

Low-income individuals have resorted to borrowing, adding £12.5 billion in new debt in 2022 out of a total of £22 billion. They owe high-cost lenders, such as doorstep lenders and illegal loan sharks, a total of £3.5 billion, which jeopardises their future financial stability.

Families are already having a difficult time making their payments. Since October of last year, total personal debt arrears have more than quadrupled from £1.8 billion to £3.8 billion, and JRF anticipates that these arrears will continue to grow as interest rates rise.

Unsettlingly, the research discovered that the government is making life extremely difficult for people by exploiting the benefits system to collect some debts, sometimes at exorbitant rates. Families receiving assistance without these “debt deductions” suffer less than those who are obliged to have them.

JRF has suggested a simple way to ease the burden on these claimants: allow them to repay their debt more slowly while the cost of living crisis is ongoing, rather than cutting their income by a quarter every month.

And Universal Credit entitlements should increase to ensure that – at a bare minimum – people are able to afford the essentials when they fall on hard times.

This is, of course, entirely logical. The benefit system is intended to ensure that people don’t fall into debt at all – not simply to make them prey to loan sharks at a slower speed.

But we’re seeing no announcements about this from Rishi Sunak or Therese Coffey.

All we’ve had are big headlines about payouts to everybody, including £400 for every house – meaning people who own multiple dwellings receive that amount many times, in comparison with the poor who only have one.

This Site has stated it before: it’s a big subsidy for the rich. And the fact that the poor are being driven to loan sharks makes it all the more obscene.

Source: Tory cost of living crisis made worse by a decade of welfare cuts

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