Wonga or worse: debt becomes squeezed Britain's 'personal safety net'
|
Version 0 of 1. Are you close to the edge? Millions of British families are, including those on middle incomes and in full time work, according to new research. They live precariously on the precipice of financial meltdown, struggling with personal debt, some of it run up as desperate way of coping with the rising cost of living. Debt is how many low to middle income people now manage their finances on an ongoing basis. I wrote about this phenomenon in Anfield, Liverpool, last year. Today's research brings a national perspective. It estimates that millions of people are using credit cards or high-interest payday loans to pay monthly utility bills, rent and council tax, while an estimated 12m have so little in the way of savings that they would be plunged into "problem debt" within a month of suffering a major financial shock such as unemployment The precarious financial state of Britain's "squeezed middle" - and the absence of a financial shock absorber for many of those households - is set out in a report by the Step Change debt charity, which warns that without government support many "hard working" families will struggle to stay afloat. According to the report: The people most at risk of falling into debt - average earning households, families with children and those in full time work - are the very definition of the 'hard working family' that many government policies set out to help. It calls for a series of measures to help prevent around 8m households with incomes of up to £35,000 a year sliding into a level of debt that they would struggle to escape from. These measures include better access to affordable credit, free debt advice and action to tackle unfair utility charges levied on low income households. The Step Change research provides useful context to the latest findings from the Real Life Reform study, published last month. That research, which looked at how a group of social housing tenants in the north of England were coping with welfare reform, found that low income families were running up personal debt at the rate of £52 a week, simply to pay for basics. Average household debt was £3,000. On average, households spent almost as much a week repaying debt (£34) as they spent on food (£40). Step Change emphasises, however, that debt is not solely a problem for those reliant on benefits. Working families at the lower end of the middle income band were almost as likely as the very poorest to experience financial difficulty, while the risk of problem debt was widespread for all but those on the highest incomes, it says. Most of the 500,000 people helped by Step Change in 2013-14 fell into problem debt because they lost their job, or were forced to work reduced hours. But full time work offered no guaranteed escape route from debt, the study found, with an estimated 6m people using credit to "make it through until payday." Almost 3m were using credit to keep up payments on other credit commitments. Although there are signs of wider UK economic growth, key living costs would continue to rise for middle income families and short term and insecure jobs would remain a feature of the labour market, the charity said. Many families would not feel the benefits of an economic upswing, and would need help to stop them falling off the edge. It concludes: The road to recovery will be far from smooth for many Indeed, it may get worse in future, the charity suspects. It warns that energy and water bills will continue to rise over the next two decades, while in the short term, even a small rise in interest rates to 3% could see over a million people spending half their take home pay servicing debts, double the current level. According to Mike O'Connor, chief executive of Step Change: The role that credit plays in our lives has undergone a sea-change. Millions of people have too few savings to deal with inevitable financial shocks. High cost credit has become a personal safety net for which all too often strangles the people who use it. Although personal debt levels had reduced overall compared to the run up to the credit crunch, the strain on household finances triggered by recession and austerity has left millions with too few savings to provide a buffer zone against financial emergencies. High cost credit, such as payday loans have become the "credit of last resort" for many Step Change clients, with six out if 10 also having unmanageable overdraft and credit card debts. Two million people were already using payday loans, and 1.5m more would consider taking out one to pay essential bills, the charity found. There was little confidence among those surveyed that the state would be able to help them if they suffered a financial shock. The report notes that a claim for unemployment benefit might take 38 days, pushing a benefits payment beyond the next payday. A quarter of people do not have the savings to finance that length of time. As the state recedes, so the personal safety net - Wonga or worse, in many cases - steps in. The charity's analysis was based on YouGov survey of British household finances conducted in December 2013, involving 4,442 people, as well as polling of Step Change clients. It is up to government, companies and charities to do more, says O'Connor: Governments, the private and voluntary sectors need to work together to develop a robust safety net which helps people back on their feet, and to work towards ensuring more financial resilience such that people are better able to withstand income shocks. |