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Over-Indebtedness: The New Normal


Over-Indebtedness: The New Normal

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Creditfix Chairman, Pearse Flynn, had called for consumers to get help with their debt problems, to make sure struggling with problem debt doesn’t become their “new normal”.

His comments come in response to a report by the powerful House of Commons Treasury Committee.

The report by the Committee, into household finances, suggests the “new normal” for UK households is stagnating income levels, low interest rates and rising levels of household debt.

The findings come as the Office of Budgetary Responsibility report consumer expenditure last year exceeded income by £25 billion.

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Income levels are growing at their slowest rate

In simple terms, UK consumer are now living beyond their means and unless they reduce their expenditure, the small levels of savings they have will be wiped out, with levels of personal debt increasing.

The report also found that income levels in the UK have been growing at their slowest rate since the 19th century, with growth in earned income being marginal, whilst growth in social security benefits non-existent. The only income types, they found, that have grown have been pensioner benefits and private pensions. This has led to the gap between the income of pensioners and those of working-age shrinking from 20% to 10%.

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Government debt collectors are the worse

The report also found that when it comes to personal debt, the lenders who were often the worse were local authorities and HMRC. It found they were more aggressive than consumer credit creditors and acted quickly to call in the bailiff’s once someone was in arrears, particularly for council tax arrears.

In giving evidence to the Committee, Mark Upton, of Citizen Advice, even said central and local government could learn from consumer credit lenders in showing more patience with debtors and providing breathing space when they were struggling to repay debts.

The UK’s Financial Conduct Authority also gave evidence to suggest that levels of non-borrowed debt, such as council tax, income tax and utility arrears were on the rise. They stated that since the levels of interest that payday lenders could charge had been capped, in 2014, the levels of debt that people were presenting with at citizen advice bureaux had fallen, but the levels of non-borrowed debt had increased and was in the hands of debt collectors, who often were more aggressive than commercial lenders.

The Committee also found that free debt advice sector was now underfunded and heard evidence from the Chief Executive of Stepchange, the debt advice charity, who said they had been suppressing demand for their services for the last four years. Speaking to the Committee, Phil Andrew, said, “…if we advertise, we simply cannot cope with the number of people who want our help”.

Personal debt levels are a big problem for many UK households

Speaking about the reports, Chief Executive of Creditfix, Pearse Flynn, has said:

“Both these reports from the Treasury Committee and the Office of Budgetary Responsibility are only the latest in a series of reports published in the last year that all say the same thing: that personal debt levels are now a major problem for many households.

“At a macro level, the Bank of England may not be worried that personal debt is a significant threat to the UK economy, but it’s clear on a personal level many households are now at breaking point.

“With a hard Brexit looking possible, and with reports the UK Government is stockpiling food, there is a danger in the immediate aftermath of Brexit the UK will face shortages, and this may increase the cost of living for normal households. This is likely to force families into more debt, particularly of the non-borrowed type, such as council tax and utility bill arrears.

“There is also a danger as the Financial Conduct Authority continue to tighten regulation for high-cost lenders, such as the rent to buy market, that consumers will see their non-borrowed debt levels rise, such as council tax and utility bills, in the same wage they did after caps were placed on payday lenders.

“The need for the UK Government’s breathing space remedy has never been greater, particularly to force local authorities and HMRC to give more time to those experiencing financial difficulties”.

Breathing Space is a new scheme that will be launched across the UK and will provide people struggling with their debts six weeks to seek advice about how to deal with their debts. The scheme is being introduced as part of the Financial Claims and Guidance Act 2018.

Debt solutions available 

Creditfix are the largest provider of personal debt solutions in the UK and provide access to all formal debt solutions available in England, Wales, Northern Ireland and Scotland.

This includes protected trust deeds, sequestration and the Debt Arrangement Scheme in Scotland and also Individual Voluntary Arrangements (IVAs) in the rest of the UK.

If you are struggling with your personal debts and wish to speak with a friendly adviser on a confidential basis, contact Creditfix on 0808 2085 198.

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