According to a recent analysis, the number of households in the UK struggling with significant debt has increased by two-thirds since 2017. Debt Justice, a charity focused on combating unfair debt, has discovered that approximately 12.8 million adults in the UK are falling behind on payments or finding it difficult to repay their debts. The charity is calling for immediate action to prevent individuals from becoming “trapped in poverty.”
These findings come in the wake of the Bank of England’s decision to raise interest rates to 5% last month, marking the highest level in 15 years. Financial markets now anticipate a further increase to as much as 6.25% by the end of the year.
Heidi Chow, the executive director of Debt Justice, has criticized the government for ignoring the growing household debt crisis. She asserts that instead of turning a blind eye, the government should focus on increasing incomes, improving protections for those in arrears, and writing off unmanageable debts to provide a fresh start for those in need.
In 2017, the Financial Conduct Authority (FCA) conducted a financial lives tracking survey, revealing that 7.7 million adults in the UK were already over-indebted. This means they had missed credit commitments for three or more months or were struggling with the financial burden of bills. The number of individuals dealing with debt increased to 9.6 million by May 2022 and reached 12.8 million in January of this year. Debt Justice argues that there is insufficient support for those facing debt during the ongoing cost of living crisis.
To highlight the impact of debt, a 47-year-old community worker from east London shared a statement with the charity. She described how her health deteriorated, requiring a major operation that resulted in reduced pay due to time off for recuperation. This led to a spiraling debt that eventually reached £15,000.
It is worth noting that the FCA recently announced a ban on companies receiving referral fees from debt solution providers. This move comes amid concerns that unscrupulous firms have been targeting individuals with large debts to promote individual voluntary arrangements (IVAs). Citizens Advice has warned about these companies “preying on and profiting” from people struggling with debt. In 2022, the number of IVAs registered in England and Wales hit a record high since 1990, reaching 87,967.
Debt Justice emphasizes that the cost of living crisis and high interest rates pose a risk of trapping people in poverty, which could have long-term negative effects on the economy. The charity advocates for a new government strategy to address this crisis, including a freeze on evictions and bailiff actions related to household bills.
In conclusion, it is clear that the rising household debt in the UK requires urgent attention and action to prevent further poverty and economic stagnation.
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