It’s important to worry about the right things. Interest rates are up, sparking worries about our debts – in my case, the mortgage. Consumer debt (credit cards, overdrafts and personal loans) is surging, we’re told. But the truth is, consumer debt levels are down. New Resolution Foundation research shows them at their lowest since at least 1999, down from 23% of household disposable incomes in the mid-2000s to 13% today.
Since the start of the pandemic, there have been two phases. During lockdowns people couldn’t spend, paying down debt to the tune of £26bn between December 2019 and March 2021. More recently, debt has been increasing again but not as fast as incomes. Lenders have been tightening up access to loans, and higher inflation can also help those of us with debts partially “inflate” them away.
The changes are significant – if we still had 2019 debt levels, that would mean £1,700 more per household. The result is that, even after interest rate rises, British families are spending less servicing their consumer debts than pre-pandemic.
Is it all good news? No – debt hasn’t just shrunk, it has shifted. Rather than borrowing on credit cards, those on lower incomes have been falling behind on priority bills, such as rent, utilities or council tax. Energy bill arrears are the highest since records began in 2012. People asking Citizens Advice for help on average have £1,000 less credit-card debt but more than £500 higher bill arrears since Covid. This has advantages – interest costs don’t mount up for bill arrears as they do for credit cards. But the risks are large. Unpaid bills can lead to eviction or the power being cut off. The debts we take on are changing, and politicians and policymakers need to keep up.
• Torsten Bell is chief executive of the Resolution Foundation and author of the forthcoming book Great Britain? How We Get Our Future Back
