Personal debt ‘costing the UK economy £900m a year’

6 Sep 18

Personal debt is costing the UK economy £900m every year, the public spending watchdog has warned today.

A greater reliance on state-subsidised housing and public health services by people unable to pay debts and household bills is costing the public purse an extra £248m a year, the National Audit Office has calculated.

About 8.3 million people in the UK are currently in debt, the NAO said. Personal debt can lead to health issues associated with anxiety and depression, it pointed out.

Head of the NAO Amyas Morse said: “Problem debt has significant consequences both for individuals and the taxpayer.

“The Treasury needs a better understanding of the scale of people’s debt problems and how it is impacting their lives and the taxpayer so it can effectively resolve the problem.”

The watchdog estimated people in the UK owed about £18bn to government, utility companies, landlords and housing associations.

It also warned that funding pressures on local government meant debts were being pursued “too quickly and aggressively”.

Only 19% of local authorities have established best practice procedures on how to assess affordability of repayments, according to the NAO.

The report said: “Intimidating actions and additional charges on over-indebted people are 15-29% more likely to make debts harder to manage or increase anxiety and depression.”

This echoes a Treasury select committee out in July, which accused local authorities of being “over-zealous” when pursuing debt.

The watchdog recommended the Treasury ensure its policies on personal debt draw on best practice and that it improve the quality and availability of data across government on the scale, nature and impact of problem debt on individuals and taxpayers.

The NAO report noted that 40% of reported debt problems in 2017-18 related to debts owed to government- an increase of 21% since 2011-12.  

Chief executive of StepChange Debt Charity Phil Andrew said the report “hits the nail on the head”.

He added: “Poor debt collection practices that fixate only on getting as much money as quickly as possible are counter-productive and ultimately harmful.”

A Treasury spokesperson said: “We are increasing funding for the Money Advice Service to over £56m, enough to help over 530,000 people get the debt advice they need.

“We are also introducing a breathing space from problem debt to give people time to get their lives back on track.”

The Money Advice Service provides free impartial advice on money and financial decisions to people in the UK.

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