Problem debt could be holding back the recovery, says new report

There has been a sharp rise in household debt among young people and low-income families


One in eight households in the UK now have ‘problem debt’. That’s according to new research commissioned by TUC and UNISON, which shows that 3.2 million British households were over-indebted in 2014. This is a significant increase on 2012, when the figure was 2.5 million, or one in ten households.

‘Problem debt’ is defined as having to spend a quarter or more of monthly income on unsecured debt repayments, such as credit cards, loans and overdrafts. But the report, entitled Britain in the Red, finds that 1.6 million households are spending as much as 40 per cent of their gross monthly income on debt repayments (not including housing debts like mortgage or rent payments). The ‘great majority’ of this number, 1.1 million, are lower-income households.

The situation has got much worse for young people over the past two years. In 2012,  just 2 per cent of 18-34 year-olds with any form of unsecured borrowing were over-indebted, but by 2014 this had risen to 10 per cent. The average total unsecured debt for working households aged between 18 and 24 has nearly doubled in the past three years, from just under £7,000 to £13,190.

Although the report says that credit card, personal and payday loans, overdrafts and store cards were the main factor behind this rise in debt rather than student loans, the new research adds to an already worrying picture of  a generation of young people saddled with insurmountable debts. ‘Generation rent”s chances of ever owning a home are diminished even further if much of their monthly income goes on repayments.

Low income families have also suffered from the rise in problem debt. In 2012, 9 per cent of low-income families were over-indebted, compared to 16 per cent in 2012.

The TUC and UNISON say the report reveals how economic growth has failed to reduce the burden of debt repayments for many families, and this combined with wage stagnation is forcing families to borrow far more than they can afford to make it to the end of the month.

As general secretary Frances O’Grady put it, ‘rising household debt is not the sign of a healthy economy’. In fact, it was personal borrowing that helped to drive the last financial crash.

The Bank of England identified the pre-2007 consumer debt boom as one of the causes of the financial crisis and subsequent recession, and has also suggested that household debt has hampered the recovery since.

A 2014 report provided strong evidence that consumers with high debts panicked after the crash and cut their spending. If this group cut their spending by more than the average, the report said, it could account for as much as two-fifths of the 5 per cent collapse in private consumption after 2007.

Britain in the Red concludes that policy makers are not paying enough attention to the ongoing problem of household debt and its effect on the recovery. Both the TUC and UNISON have warned that the problem could get worse if interest rates go up, which they are currently predicted to do around September 2016.

Ruby Stockham is a staff writer at Left Foot Forward.

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25 Responses to “Problem debt could be holding back the recovery, says new report”

  1. NHSGP

    Or the 11 trillion state debt, with no assets.

    On the consumer debt problem. There’s 1.5 trillion of consumer debt. 90% of that is mortgages against property worth 5.5 trillion. So the mortgage debt isn’t a problem.

    Of the rest most is credit cards. That’s not wonga loans, it’s people who have mortgages and in most cases will have equity in their properties. They have assets.

    According to Stella Creasey, its 8 bn of problem loans. A small amount.

    Meanwhile there are those state debts owed by the welfare state with no assets. That money was redistributed, and now that makes a real problem.

    If you want more private spending, cut taxes.

  2. GhostofJimMorisson

    Irresponsible people buying shite they don’t need, with no intention of paying it back. Easier to pass the burden on to the next generation, because maintaining a high standard of living has become sacrosanct. But rather than holing the individual to account for their avarice and profligacy, the Left would rather blame government and cuts to welfare. This is nonsense. We can blame banks, payday lenders and retail stores all we want; but this is their raison d’être, and people should have the intelligence and foresight to see through this.

  3. will

    I agree, and blaming the ‘baby boomers’ for everything, why don’t they try living like we did in the 70’s, no car, washing machine, tv, etc then they would have the brass to start buying a house

  4. NHSGP

    Why is the public? It isn’t

    Put the numbers to the debts.

    Banks have assets exceeding liabilities.

    The average member of the public has assets exceeding liabilities.

    There is one organisation that is bust. It’s the state. It’s borrowed without assets. It’s spent/redistributed/wasted every penny given to it for people’s pensions. No assets. Doesn’t mean that there are no debts. They are massive.

    So how can you blame the public when the state lies about its debts?

  5. GhostofJimMorisson

    Read the article again. Store cards, payday loans, credit cards and overdrafts are the main factor in rising debt. I agree with you about the state, but personal liability has played a huge role in this.

  6. Dave Stewart

    Or perhaps we could blame employers who fail to pay their staff enough money to live on. Or perhaps we could blame, for a lack of a better phrase, the capitalist class (or the 1% should you like such parlance) for hovering up ever greater shares of the massively improved productivity since the mid 60s onwards leaving less and less for ordinary people to share and thus resulting in them taking on more personal debt to maintain their lifestyle.

    Or we could talk about how companies manufacture demand for products that people do not need resulting in excessive consumer spending and debt.

    Of course people hold personal responsibility for their finances but by completely ignoring the socio-economic factors which help form and dictate peoples actions you intentionally blind yourself to the myriad contributing factors that have resulted in the situation we are in now. Of course that may have been your purpose, I don’t know, simply to put all of the blame on individuals and thus remove any responsibility from business, government and society.

    Pretty much everything in life is interconnected in complex ways and using reductive simplistic arguments will never result in useful solutions.

  7. Tom

    How do you propose I manage without a washing machine? There are no laundrettes I can think of within several miles of my house (unlike in the 70’s), and I’d end up spending loads of time and money each week, rather than one-off expenditure on a relatively cheap appliance.

    Your comment seems to completely misunderstand why people my age struggle – appliances are cheap, one-off purchases, but our problems come from a combination of high day-to-day expenses and low incomes. My rent takes up nearly half of my household income (and that’s quite a low proportion – once I move to my new job it’ll be some way over half). One you add in utility bills, food, council tax and necessary travel, there’s precious little left to save. And that’s even before things like seeing family or friends.

    My parents were outraged to see what passes for a graduate salary these days – life simply isn’t the same as in the 70’s. You should try to understand what the problem is before prescribing out of date, judgemental solutions.

  8. GhostofJimMorisson

    Why does the Left always need a target? To invent a certain caste or group of people to act as scapegoats for their failure, or the failure of individuals? If it’s not the aristocracy or the bourgeois it’s the Kulaks, the intellectuals or the Jews. Now it’s the 1% – that shady cabal, controlling everything, standing in the way of Utopia.

    Less and less for ordinary people to share? Rubbish! People are immeasurably materially better of than they were in the 60’s. How many working class families owned 2 cars, too regular foreign holidays, owned several television sets, ate out regularly in restaurants?

    I simply don’t understand what socio-economic factors necessitate people taking out huge loans, store cards and over draughts. And how is it the fault of the government? Blame business all you want, but like I said, it’s their raison d’être.

  9. GhostofJimMorisson

    Graduate salaries are lower because there are vastly more graduates and graduate jobs than there were in the ’70s. A degree is now the minimum level of education required for many jobs that 20 years ago one could have acquired with 5 good GCSEs. High rents are a result of shortage of decent affordable housing, exacerbated by unsustainable levels of immigration. Moreover, if you live in London – have voluntarily chosen to live in London – I have zero sympathy for you.

  10. GhostofJimMorisson

    or we could talk about how companies manufacture demand for products that people do not need resulting in excessive consumer spending and debt.

    But surely this demand creates jobs?

  11. Tom

    My comment wasn’t in response to you. I have no desire to wade through a morass of right-wing myth-making.

  12. GhostofJimMorisson

    You mean you lack the intelligence for reasoned debate? Ok, fair enough. Don’t post on a comments’ bored if you lack the capability or balls for debate. Retreat to your sanctuary of petty name calling and let the grown-ups talk.

  13. will

    it was way worse in the 70’s, stop your whining n grow a pair. . .I kipped in a back alley for two years then derelict houses, that was as a teenager. . .man up

  14. Tom

    Yessir, sorry, I forgot we were supposed to try to make sure that every successive generation suffers just as much as the last.

    The point was actually that your original comment was misguided. No, I will not ‘have the brass to start buying a house’ if I lived like people did in the 70s. But hey, keep blaming young people for their own situation, and don’t bother trying to inform yourself out of your narrow comfort zone. I’m just so glad that politicians don’t make policy to pander to people like you.

  15. will

    politicians have never done ANYTHING for me, who says im in any kind of comfort, zone or not. . .my comment was not misguided. . .every discussion about the economy on tv with 20/30 yr olds ends up blaming the ‘boomer’ for everything

  16. Tom

    “politicians have never done ANYTHING for me”

    I don’t agree with this in the slightest, but I suspect we’re never going to agree. So unless you really want to discuss it, I suggest we put it to one side.

    What I do want to know though, is the answer to my initial point – how do you advise I save enough to buy a house? If I saved up *all* my disposable income (and never had any emergency expenditure, I’d just about manage the deposit for a one-bedroom flat in 10 years – except in 10 years time prices will have gone up enough for me to need another 5 years of nothing but saving. And then prices would have gone up again…

    This isn’t about me blaming the boomer generation for everything, but I tend to feel that many boomers blame us for everything, and suggest that if only we sorted our behaviour, we’d be alright (as you did above). So I’d like to know what behaviour you suggest I fix – having a roof over my head, eating or being warm? Because without doing without one or more of those, I can’t buy a house any quicker. The washing maschine doesn’t really come into it.

  17. will

    once again you rtalking like its your right to OWN a house, I say it isn’t, I say you make do with what you CAN afford, as per the seventies. . .

  18. Tom

    You should try re-reading what you wrote, instead of just continuing to criticise young people:

    “why don’t they try living like we did in the 70’s, no car, washing
    machine, tv, etc then they would have the brass to start buying a house”

    Just to re-iterate, you said that if we “[tried] living like we did in the 70’s”, then we “would have the brass to start buying a house”.

    Not ‘give up on wanting to own a house’. You said we *would*. Can you clarify please – will we ever be able to buy a house, or should we just accept that we will never be able to?

  19. will

    yeah, either or, whats wrong with that ?. . .live within ya means n don’t borrow money from a bank most of all. . .

  20. Tom

    Right, ok. So it’s not our fault, but we won’t ever be able to buy houses Society will be structured so that we live our lives renting from people, and wealth will perpetually trickle up to those who already have large amounts of capital.

    Thanks for the conversation, and best of luck to any grandchildren you might have – they’ll clearly need it.

  21. will

    that’s how its always been, read your social history

  22. Tom

    Nope. Ratio of house price:earnings for a first time buyer was 2.7 in 1983, but is now 4.9. It was much, much easier in your day.

  23. will

    so a house is your right ?

  24. Tom

    No-one said it was. But the facts are clear – it was much easier to save for a house in the past, and it has nothing to do with the way young people behave.

    If you’re happy to have had these opportunities, but also deny them to your grandchildren’s generation, then as I say, there’s no point continuing the conversation.

  25. will

    stop replying then . . .?

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