Problem debt made worse by wages standstill says TUC report

By agency reporter
August 24, 2016

More than a million families with a household income below £30,000 are in extreme debt, and ongoing wage stagnation is making the problem worse, according to a new report published yesterday (23 August 2016) by the Trades Union Congress (TUC) and UNISON.

The report, Britain in the Red, finds that total unsecured debt (which excludes mortgages) for UK households rose by £48 billion between 2012 and 2015 to reach £353 billion.

The report looks at how this debt is distributed, finding that millions of households are struggling with high repayment rates relative to their income:

  • 3.2 million households are in ‘problem debt’ – defined as paying out more than 25 per cent of their gross household income on unsecured debt repayments (3.2m is equivalent to one in eight households.)
  • 1.6 million households are in ‘extreme problem debt’ – defined as paying out more than 40 per cent of their gross household income on unsecured debt repayments (1.6m is equivalent to one in 16 households.)

Many low-income households are under particularly severe pressure. Of the 1.6 million households in extreme problem debt, it is estimated that 1.2 million have a household income below £30,000.

For low-income households in employment, extreme problem debt is growing fast. In 2015 nine per cent of low-income households in employment were in extreme problem debt, nearly doubling from five per cent in 2014.

The TUC and UNISON are concerned that the numbers affected by problem debt are set to continue increasing. Bank of England figures show that consumer credit, which makes up the main part of unsecured debt, is now growing at an annual rate of 10 per cent. This is the highest growth rate for more than a decade.

The mountain of unsecured household debt has been fuelled by a collapse in the value of wages. OECD figures show UK real wages declined by 10.4 per cent between 2007 and 2015. This means that, even though household debt has not grown every year since the crash, and has not yet reached pre-crash rates, the fall in the real value of wages has made it harder for families to service existing debt.

TUC General Secretary Frances O’Grady said: “Families can’t continue relying on credit cards and loans to get by. But with the average weekly wage still worth £40 less than before the 2008 crash, lots of families have little choice.

“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.

“And we need public investment in major infrastructure projects to create more well-paid jobs and build a stronger economy.

“The government must 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 said: “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.”

* Read the report Britain in the Red here



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