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Debt crisis 'looms for two million', says think tank

Politicians are ignoring a looming crisis in household debt which could see two million families driven to "the edge of their means", a leading think tank has warned.

Debt crisis 'looms for two million' Credit: Owen Humphreys/PA Wire

The Resolution Foundation said the number of British households spending more than half their disposable income on debt repayments could triple by 2018 if interest rates rise faster than predicted.

It urged banks to start checking on debtors now, in case they are caught off-guard when the cost of borrowing goes up.


'Millions could escape spiral of debt' with free advice

Millions of people could escape their spiral of debt by accessing free advice.

However, this study presents us with a fundamental challenge: the majority of people with debt difficulties do not seek advice.

This is the first time we've had such a detailed understanding of the complexity of their lives. So now, armed with greater insights, we will work with advice agencies, creditors and public bodies to help as many people as possible access free, high-quality, debt advice.

– Caroline Rookes, CEO of the Money Advice Service

More than half of those in debt are working

The report used information from credit checking company Experian to build a profile of those who have sunk badly into debt.

Families dependent on benefits made up around one fifth (20.2%) of those who are over-indebted, while "worried" working families who find being in debt a constant burden accounted for a similar proportion (19.4%).

More than half of those in debt working Credit: Barry Cronin/PA Wire

Nearly one in 10 (9.8%) of those with bad debts were identified as people who are working for the first time and one in eight (11.3%) are struggling students. Some 1.1% of this group are people eking out an uncomfortable retirement.

Almost three-fifths (58%) of those with severe debts were found to be in employment and nearly half (48%) live in a privately-owned home.

UK's five most over-indebted areas identified

The MAS report, titled Indebted Lives, identified the UK's five most over-indebted areas as: Hull, Nottingham, Manchester, Knowsley and Liverpool. Around two-fifths of adults in all these areas are struggling with debt.

Liverpool was identified as one of the UK's five most over-indebted areas. Credit: Martin Rickett/PA Wire

At the other end of the scale, Richmond upon Thames in south London has just 1.2% of its population struggling with debt, according to the report.

Two thirds of those in debt are women

  • Around one fifth (21%) of those the research classed as over-indebted, equating to 1.8 million people across the UK
  • A further 11% were not concerned about being in debt
  • One in eight (12%) over-indebted people said they were thinking about trying to get help soon
  • Three-quarters (75%) of the estimated 8.8 million people with severe debt problems are under 45 years old and nearly two-thirds (64%) are women
  • Some 74% of those with severe debt problems said they are unhappy
  • Around four million people are thought to have been struggling to pay their bills for more than a year
  • Just under half (48%) of those with severe debt had to forego basic necessities


Nearly nine million people in 'severe debt'

Nearly nine million people are estimated to be trapped in a spiral of severe debt in the UK, the Government-backed body the Money Advice Service (MAS) has found.

Just one in six getting help to break free.

Nearly nine million people in 'severe debt' Credit: Owen Humphreys/PA Wire

Around 8.8 million people are "over-indebted", meaning they have fallen at least three months behind with their bills in the last six months or they feel their debts are a heavy burden

But just 17% of this group said they are getting advice to help them deal with their debt, while around two-fifths (40%) said they did not feel able to talk to their creditors and 44% did not know where to turn for help, the research from more than 5,000 people found.

Maxed Out: A study of Britain's personal debt

  • Personal debt in the UK stands at £1.4 tn with an average household owing £54,000, compared with £29,000 a decade ago
  • Unsecured consumer debt has almost tripled since 1993, reaching nearly £160bn
  • Poorest 10% of household in the country have average debts more than 4x their annual income
  • More than 8 million households now have no savings at all
  • 26,000 UK households have been accepted by councils as homeless in the last five years because of rent and mortgage arrears, with 5,036 becoming homeless last year
  • Payday lenders have increased business from £900 million in 2008/09 to just over £2 billion in 2011/12.

Think tank: Problem debt can 'wreak havoc' on lives

Years of increased borrowing, rising living costs and struggling to save has forced many families into a debt trap that is proving very difficult to escape.

Problem debt can have a corrosive impact on people and families. Our report shows how it can wreak havoc on mental health, relationships and wellbeing.

Across the UK people are up until the early hours worrying about their finances and bills.

Some of the poorest people in Britain are cut off from mainstream banking and have no choice now but to turn to loan sharks and high-cost lenders.

– Centre for Social Justice director Christian Guy
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