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