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.

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Tom Watson rouses Labour's conference as he comes out fighting

The party's deputy leader exhilarated delegates with his paean to the Blair and Brown years. 

Tom Watson is down but not out. After Jeremy Corbyn's second landslide victory, and weeks of threats against his position, Labour's deputy leader could have played it safe. Instead, he came out fighting. 

With Corbyn seated directly behind him, he declared: "I don't know why we've been focusing on what was wrong with the Blair and Brown governments for the last six years. But trashing our record is not the way to enhance our brand. We won't win elections like that! And we need to win elections!" As Watson won a standing ovation from the hall and the platform, the Labour leader remained motionless. When a heckler interjected, Watson riposted: "Jeremy, I don't think she got the unity memo." Labour delegates, many of whom hail from the pre-Corbyn era, lapped it up.

Though he warned against another challenge to the leader ("we can't afford to keep doing this"), he offered a starkly different account of the party's past and its future. He reaffirmed Labour's commitment to Nato ("a socialist construct"), with Corbyn left isolated as the platform applauded. The only reference to the leader came when Watson recalled his recent PMQs victory over grammar schools. There were dissenting voices (Watson was heckled as he praised Sadiq Khan for winning an election: "Just like Jeremy Corbyn!"). But one would never have guessed that this was the party which had just re-elected Corbyn. 

There was much more to Watson's speech than this: a fine comic riff on "Saturday's result" (Ed Balls on Strictly), a spirited attack on Theresa May's "ducking and diving; humming and hahing" and a cerebral account of the automation revolution. But it was his paean to Labour history that roused the conference as no other speaker has. 

The party's deputy channelled the spirit of both Hugh Gaitskell ("fight, and fight, and fight again to save the party we love") and his mentor Gordon Brown (emulating his trademark rollcall of New Labour achivements). With his voice cracking, Watson recalled when "from the sunny uplands of increasing prosperity social democratic government started to feel normal to the people of Britain". For Labour, a party that has never been further from power in recent decades, that truly was another age. But for a brief moment, Watson's tubthumper allowed Corbyn's vanquished opponents to relive it. 

George Eaton is political editor of the New Statesman.