One million low-income families living in extreme problem debt, finds report

23 Aug 16

The number of UK families living in extreme debt has risen to more than one million due to stagnant wage growth, including in the public sector, research published by the Trades Union Congress and Unison has found.

According to the report, total unsecured debt between 2012 and 2015 – from credit cards, bank loans, payday loans and student loans – rose by £48bn and now stands at £353bn. 

Around 3.2 million, or one in eight, households are living in ‘problem debt’. This is defined as paying out more than 25% of gross household income on unsecured debt repayment.

Meanwhile, 1.6 million households, one in sixteen, are in ‘extreme problem debt’ – those paying out more than 40% of income on unsecured debt repayments. The report estimates that 1.2 million households in this bracket have an income of less than £30,000 per year, which is below the low-income threshold.

For low-income households in employment, extreme problem debt is growing fast. In 2015, 9% this group were in extreme problem debt, which is nearly double the figure of 5% from 2015.

The report cites recent Bank of England figures that show consumer credit, which is the main constituent of unsecured debt, is now growing at an annual rate of more than 10% – the highest rate in a decade.

TUC general secretary Frances O’Grady stressed that households could not continue to rely on credit cards and loans survive. But because wages per week were worth £40 less than before the 2008 crash, many families had little choice, she said.

“Higher wages must be at the heart of the government’s economic plan. We need a return to proper year-on-year pay rises, and a higher national minimum wage.”

O’Grady urged the government to increase public investment in major infrastructure projects to create more well-paid jobs and to build a stronger economy. Policy makers should also do more to help low-income families struggling with problem debt in getting access to debt restructuring and insolvency support

Unison general secretary Dave Prentis highlighted that public sector pay freezes have not helped the situation for households in debt. “Many of those affected by debt will be public service workers who have suffered eight years of zero pay rises followed by a government imposed cap on earnings.

“This report rightly draws a link between increased debt and stagnant wage growth at a time when rent and transport costs continue to rise. Many families are having to make choices between paying the rent and feeding their kids.”

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