The number of UK households struggling with heavy debt has increased by two thirds since 2017, according to new analysis. Debt Justice, a charity that campaigns against unjust debt, has found that about 12.8 million adults in the UK are falling behind on bills or finding repayments a heavy burden. It is calling for urgent action to prevent people being “trapped in poverty”.
The findings come after the Bank of England increased interest rates to 5% last month, the highest level for 15 years. Financial markets now expect the Bank to raise rates to as much as 6.25% by the end of the year.
Heidi Chow, executive director of Debt Justice, said: “The government is turning a blind eye to the colossal household debt crisis that is engulfing millions of people at breakneck speed.
“Instead of ignoring the problem, they need to raise incomes, boost the protections for people in arrears and write off the unpayable debts to give everyone that needs it a fresh start.”
The Financial Conduct Authority’s (FCA) financial lives tracking survey in 2017 found 7.7 million adults in the UK were then over-indebted, which meant they had missed payment for credit commitments for three or more months or were finding bills a heavy financial burden.
The numbers struggling with debt in the UK rose to 9.6m in the May 2022 survey and 12.8m in January this year. Debt Justice says there is not enough support for people struggling with debt during the cost of living crisis.
A 47-year-old community worker from east London who provided a statement to the charity about the impact of debt said: “My health started deteriorating and I had to have a major operation. Afterwards I needed time off work to recuperate, so my pay went down even further. My debt started spiralling and eventually it reached £15,000.
“I took out credit cards and loans. I tried everything possible to pay off the debt that was building up. I was put in an impossible situation.”
One of the options for people struggling with debt is an individual voluntary arrangement (IVA), which is a formal and binding agreement to pay back debts to creditors over a certain period. In 2022, 87,967 IVAs were registered in England and Wales, the highest number since 1990.
There have been concerns that unscrupulous companies have been targeting people with large debts to promote IVAs. Citizens Advice has warned that some firms had been “preying on and profiting” from people struggling with debt.
The FCA announced last month that it was banning companies from receiving referral fees from debt solution providers. It found examples of customers in financial hardship who were recommended IVAs that would have caused greater harm.
One homeless person was recommended an IVA costing £6,000, when they could have been debt free in one year for £90 with a debt relief order, a low-cost debt remedy aimed at people with relatively low levels of debts.
Debt Justice warns that the cost of living crisis and high interest rates risk trapping people in poverty and acting as a drag on the economy for years to come. It wants a new strategy from the government to address the crisis including a freeze on all evictions and bailiff action to enforce household bills.
