Context

‘Credit Counts’ is one of the five Agendas for Change the Money and Pensions Service identified in its UK Strategy for Financial Wellbeing 2020-2030.

In 2018 an estimated nine million adults in the UK (around 17% of the adult population), borrowed money, or used a credit card or overdraft for everyday essentials such buying food or paying their bills, because they had run out of money. The goal of the Credit Counts Agenda for Change is to reduce the number of UK adults that borrow money in this way to seven million by 2030.

It is uncertain how the impact of Covid-19 and the policies introduced to control the spread of Covid-19 may have impacted progress against the goal.

The study

The report summarises evidence published between 1 July 2020 and 14 February 2021 on the economic impacts of COVID-19 and how these may affect credit use, particularly the use of consumer credit for everyday essentials, in the UK.

The search encompassed research from government and organisations known to publish research on savings. Expert recommendations for relevant literature were also received from academic colleagues researching the impact of COVID-19. The evidence considered was drawn from a range of sources, including organisational sources, practitioners and stakeholders and included grey literature from financial companies and the financial press.

Key findings

The overall use of consumer credit fell during the period of the pandemic covered by the study. However, there was an increase in borrowing by low-income households and a high debt-repayment rate for those professionals remaining in work. Households struggling to pay their bills had to use credit to make ends meet more since the pandemic started.

There was an overall decrease in borrowing using credit cards and affordable credit (i.e., Credit Union and Community Development Financial Institutions loans) but an increase in the use of Buy Now Pay Later. However, there was a substantial increase in the use of credit cards, overdrafts and credit purchases among the lowest-income households. Low-income households and young people were also more likely to have increased their reliance on informal borrowing.

Low-income households were more likely to have borrowed for everyday living expenses than before the pandemic. People with disabilities, parents and renters (especially social-sector tenants) were also more like to borrow to pay for essentials. Ethnic minorities were more likely to be experiencing increasing levels of debt, and an increased reliance on social security benefits was noted for several groups.

Points to consider

• Although the paper is subtitled as a rapid evidence review, the few methodological details provided suggest that the systematic or quality assessment elements that are typical of rapid reviews were not employed. The authors describe it more accurately as a summary briefing.
  • The literature search was reportedly targeted on known organisational sources and did not apparently include a wider search of peer-reviewed academic databases, preprint servers or generic Internet search engines. This suggests the summary was partial.
• The summary is likely to be incomplete and, with the exception of official statistics, the limited scope of the search strategy risks the evidence reported being biased by organisations which have partisan interests in the topics.