How disabled people are turning to payday loans to cope with benefit cuts

As their benefits are cut and their bills - for care, council tax, food, and the like - remain the same, disabled people are turning to payday loans, credit cards or even illegal lenders to try and make ends meet.

What happens to people when their benefits are cut? It seems an obvious question to ask (if we do something, the consequences of it should, at a minimum, be considered). What are the consequences, then, of dismantling people’s benefits? If, say, you have a debilitating disability that means you can’t earn a wage and your housing benefit is cut while your council tax is increased. The need to eat, be housed, and have the lights on doesn’t go away. Nor, let’s assume, does your disability or the multiple extra needs that come with it. Money to pay for those things still has to come from somewhere. That seems like basic economics. If we can agree human beings need to eat and a disabled person who, say, can’t lift themselves onto a toilet, needs (paid) support to do that, we can agree that removing the money that helps them meet those needs (either directly or by charging them elsewhere and thereby leaving them unable to pay for the need in question) would leave them having to find that money somewhere else. So where do they go? Where are disabled people going for money to live on?

Payday loan companies, according to new research by the disability charity Scope. Or credit cards or even illegal lenders. In fact, half of disabled people have used credit cards or loans to pay for basics like food or clothes in the past twelve months. 

Susan Donnelly, 54, is in £7,000 worth of debt. She’s unable to earn a wage due to severe osteoporosis, emphysema, asthma and a digestive condition that means she can’t eat solid foods, and when her benefits wouldn’t stretch, found herself turning to loan companies.

“When you get your social security letter it tells you on there the amount of money the government says you need to live on,” Susan tells me. “But by the time you take out all my bills, I have nothing to live on.”

The cycle of borrowing and interest soon hit. Refused further loans because she couldn’t pay back what she owed, and needing to eat and pay bills, Susan turned to credit cards and doorstep loans.

She’s taken out a £900 loan from a doorstep loan company. They’re charging her £1,080 of interest. She has to pay back almost £2,000 over two years; over twice what she borrowed. The debt is simply multiplying.

“I have £400 worth of rent arrears and the landlord is threatening bailiffs,” she says. “I can’t afford to put my heating on. I don’t use my oven any more. I’m scared to run up any bills. By 7pm, I’m huddled up in bed with my dog.”

Susan was struggling before the benefit changes hit, but is now losing £70 a week. She lives alone in a two-bed house in London and the bedroom tax means she’s now losing £12 housing benefit a week. Her "spare" room is filled with medical equipment and a bed for a carer when she’s too ill to cope by herself. Another £4 a week goes on a network alarm. (She’s been found unconscious twice before. Needing the emergency button though, as is the case with all needs, doesn’t mean she can afford it.) 

She was previously exempt from council tax but now has to pay over £12 a month for that too. Her care bill takes another chunk, with social services wanting £57 a week towards her care since the cuts came in in April. Her incontinence pads – £10 a week – used to be paid for by her health authority but she now has to find that money herself.

“How am I meant to pay these bills?” she says. “Realistically, I can’t afford my incontinence pads as well as the council tax.”

In seems almost inevitable, when you hear Susan talk, that people in her situation would turn to credit cards or payday loans.  Desperate people do desperate things, and as the Government makes £28bn worth of disability cuts while stalling on tougher regulation of Wonga and the like that fill the gap, there’s an industry more than ready to take advantage of that desperation. More than 30,000 people with payday loans have sought debt advice from just one charity, StepChange, in the first six months of 2013 – almost as many as in the whole of 2012

Disabled people, though, are three times more likely to draw on doorstep loans than non-disabled people, Scope have now found. Understanding the scale of the problem for the wider public perhaps makes that fact all the more alarming.

Talking about the findings, Richard Hawkes, Chief Executive of Scope, says it comes down to what type of society we want to live in. He’s got a point. Call me a bleeding heart liberal, but personally, I’d like to live in a society where disabled people can eat without taking out a payday loan. And where the benefit system isn’t designed in a way that almost actively encourages it.

“In 2013, if we want disabled people to live independently and pay the bills we cannot take billions of pounds of support away, particularly while disabled people are financially vulnerable, and less able to build up their own financial safety net,” Hawkes stresses. “The Government can no longer ignore the big picture of its welfare reforms. It must start focusing on policies that build disabled people’s financial resilience, so that they do not have to turn to risky credit and face slipping into debt.”

Sometimes credit can be good, of course. It can help (disabled) people deal with fluctuations in income or fund emergency expenses, as Scope are the first to say. But there are risks associated with credit – such as people like Susan using them to pay for everyday essentials or at times of distress, when they may overestimate their ability to make repayments, or, are fully aware they can’t, but simply have no other choice but to borrow anyway. Disabled people are disproportionately exposed to these risks. They find it harder to access low cost credit than if they weren’t disabled – a cruel irony when being disabled means it’s probably needed more. (Less than one in five disabled people use an arranged overdraft, compared to one in three non-disabled people. Worrying, yes. But this isn’t really surprising against a backdrop where disabled people are less likely to even have a bank account.)

Many banks are unwilling to lend against benefits that they perceive as unreliable. As one disabled man told Scope anonymously, it’s “virtually impossible to get any credit when on benefits... Trying to get a credit card is a nightmare...they are geared for people who work…”

This has only worsened since the Social Fund was abolished this April and replaced with new local authority welfare schemes. The Social Fund, among other things, provided Crisis Loans – interest-free loans to help people meet immediate short-term needs. With the localisation of the Social Fund, there has been no statutory duty on local authorities to provide access to equivalent forms of credit or grants, or to ring-fence budgets in order to make such provisions. This will affect 844,360 disabled people who may lose up to £43.2m in Crisis Loans, according to cumulative impact analysis conducted by Scope and Demos.

Clearly, the lack of credit options for disabled people is a different problem than the fact they are using credit cards or payday loans in order to be able to eat. Disabled people are using credit to meet daily living expenses because their income is, and always has been, disproportionately low and their needs disproportionately high – and benefits, the framework offering some (consistent) support, is now being pulled away. But that people who are disabled are less likely to be able to get low cost credit when they need it is part of a wider climate of financial instability for a certain group in society; one of exclusion, where options are limited, debt is deep, and "choice" is now a trick of a word that means high risk, high interest loans or no food to eat. Or, as Susan put it, paying council tax or buying incontinence pads.

There’s a picture built of people who are most likely to face financial pressures, who are less likely to have secure, low-cost safety nets in place, and who are now the ones being left to take the brunt of benefit cuts.

Linda Isted, of the charity Debt Advice Foundation, tells me that with the level of current focus on benefit cuts in the media, concern about reduction in benefit income is often a trigger for people to seek help. “In many cases, though, there is existing debt, sometimes at an unmanageable level, and so any reduction in income is an extra factor in what is already a problem debt situation,” she adds.

“I had no idea [these benefit changes] were coming into action,” Susan tells me when we discuss how quickly things worsened for her. She was already getting into debt by taking out doorstep loans, and as the multiple benefit cuts hit her in April, that debt just spread.

She has a £600 gas bill waiting, and a £100 electric. The bits of paper keep coming through the door, she says, but she can’t do anything with them.

“I can’t physically pay,” she tells me. “I’ve barely got enough money for food let alone anything else. I’m living inside these four walls. I’ve got nothing.”

She gives a little laugh at a couple of points as we talk, as if at this stage, there is nothing else she can do. Her pancreatic illness is worsening with the stress, she says, and she can barely think about the money she owes the doorstep loan company.

“I can’t do anything but cry [when I think about the interest],” she tells me. “I can just see myself getting deeper and deeper in debt and then bailiffs coming in and taking the furniture. That’s the only way I can see of possibly getting out of this. It’s horrific.”

If you are struggling with your debts, you can contact a free, independent debt advice charity such as Debt Advice Foundation.  Their helpline is 0800 043 40 50, or you can go to www.debtadvicefoundation.org

What do you do when your housing benefit is cut while your council tax is increased? Photo: Getty

Frances Ryan is a journalist and political researcher. She writes regularly for the Guardian, New Statesman, and others on disability, feminism, and most areas of equality you throw at her. She has a doctorate in inequality in education. Her website is here.

Getty
Show Hide image

Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation