Debt, particularly unsecured debt is a cause of growing concern for the public and policymakers alike. A report from the Institute for Fiscal Studies (IFS) jointly funded by the Joseph Rowntree Foundation and the Economic and Social Research Foundation published this week shows the impact of servicing their debts on people who are already struggling to make ends meet.
The report written for the IFS by Andrew Hood, Robert Joyce and David Sturrock builds on work on ‘problem debt' carried out by the Office for National Statistics and the Department of Work and Pensions.
Amongst its key findings are that around half of British households had unsecured debt in 2012/14, with 10% having debts of over £10,000. Low income households are less likely to have unsecured debt, but if they do they are more likely to fall into ‘net debt', where their debts are greater than their assets.
David Sturrock said that although most unsecured debt was held by ‘high income households who look able to manage it', it was though a problem for a ‘significant minority of those on low incomes’ who are spending much if their earnings on debt repayments.
The report found that 12% of people on the lowest incomes have unsecured debt and out of this group 16% are in arrears. On average people on low incomes who are in ‘problem debt spend £457 out of a monthly income of £1012 on repayments.
Responding to the report Helen Barnard, head of analysis at the Joseph Rowntree Foundation said, ‘more than one in five people on low incomes have problem debt,’ and that this was ‘putting a huge pressure on household finances'.
She concluded by saying that 2018 looked like being a ‘difficult year' for people on low incomes with ‘rising prices, frozen benefits and a wage squeeze’ all putting pressure on household budgets.
It was time, she said, for the government, lenders and regulators to ‘not only look at increasing access to affordable credit, but also at the financial pressures that can lead families to take on debt to get by'.
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