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This week, we look at the average UK debt crisis that the FCA have called a ‘debt time-bomb’. We look into why it has happened and how it is affecting the day-to-day lives of millions of people.
It’s no secret: the UK is in the middle of a debt crisis.
As the economy has waxed and waned, we’ve experience austerity, seen the rise of zero-hour contracts and the ‘gig-economy’ and – significantly – we’ve seen rent prices skyrocketing as the number of people owning their own home has plummeted. Across the country, the average UK debt is increasing at a significant rate. Hundreds of thousands of UK citizens are turning to credit cards, loans and overdrafts just to make ends meet.
We wrote about the same situation two years ago, and things haven’t improved since. In fact, the situation has got so bad that the Financial Conduct Authority has urged the government to take action, calling the crisis a ‘debt timebomb’. But just how bad is the debt crisis in real-terms?
Before we get into the facts and figures, here’s a great BBC overview of the situation and why it’s something we need to be taking seriously:
Three big-picture statistics that point to a UK-wide problem
Household debt in the UK has risen 7% in the last 5 years. Why is this significant?
Shooting up from £1,518.5bn in 2012 to £1,630.1bn in 2017, the average UK debt for households is important because it takes the country into dangerous territory: the ratio of debt to GDP is edging closer and closer towards levels seen just before the financial crash. It’s also important to look at the 7% inflation of debt in comparison to the increase of average UK wages over the same period. As the cost of living has shot up and interest on personal savings have stagnated, the average UK salary has only increased by 0.7% over the same period.
Total pay for UK employees has fallen by 0.4% between 2016 and 2017. Why is this significant?
Well, aside from the fact that you’ve got less money in your bank account than you did a year or two ago, this statistic is important because it represents how things really are for the average UK worker. You see, after a surface level glance at the statistics, you’ll notice that regular pay and total pay (which includes bonuses) increased by 2.2% between September 2016 and September 2017.
And that sounds great, doesn’t it?
But it’s not the whole picture. And it’s not the truth. According to research by the Office for National Statistics (ONS), the average salary of a UK worker – once you’ve adjusted them for the increased cost of living – had fallen by 0.4%. That means that although the money you earn is technically more than it was a few years ago, that money doesn’t stretch as far as it used to – leaving you out of pocket at the end of the month.
Which leads us nicely onto…
Unsecured debt has increased by 19% in the last five years . Why is this significant?
For the past half a decade, the interest rates on credit cards have been high. That means that for every month you haven’t cleared your credit card or store card in its entirety, the amount you owe increases. Now, it’s at a stage where the average UK citizen has seen their debt levels rocket.
And that debt is having huge knock-on effects on people’s everyday lives – as people struggle to pay off existing debts or are forced to use lines of credit just to get through the month.
For example, in November of 2017, the Citizens Advice bureau dealt with 4,563 people asking for help and advice with their debt every day. That’s nearly 137,000 people that needed help with their debt over the course of one month.
And according to a Compare the Market survey, almost 25% of the UK population are struggling to make ends meet, while 62% are worried about their levels of personal debt.
Debt crisis in real terms: looking at the average UK debt
So what do all of these statistics mean in real terms? How is the debt crisis affecting the average UK citizen?
According to The Money Charity’s January report, the average UK debt can be broken down like this:
- By household: £57,578
- Per adult: £30,253 (or, 113.8% of average annual earnings)
- Interest repayments per person: £1,836 (or 3.63% of average annual earnings)
- UK debt on consumer credit: £7,565. (If paid back with minimum repayments every month would take 26 years and 3 months to repay)
- Credit card debt per household: £2,574
And the reading doesn’t get any easier after that. According to the study:
- 277 people declare bankruptcy or insolvency every day.
- 21 properties are repossessed every day
- 1,756 CCJs are issued every day
Why are things not going to plan in our economy?
We’ve tried to keep this conversation to just the facts about average UK debt – rather than wading into the murky territory of politics and economic theory. But… the question as to why so many people in the UK don’t believe they’ll ever be free means that we’re going to have to get our hands just a little dirty.
This wide-spread debt epidemic doesn’t seem to be caused by a nation-wide opulence, extravagance or over-spending on luxuries. As a country, we’re not driving all around in brand new cars, buying houses or going on lots of holidays. Household spending is at its lowest level in almost 6 years. The widespread debt is as a result of people struggling to put food on the table, keep the lights on and pay the rent on time.
And that isn’t right.
When we entered into the post-crash austerity, the Office for Budget Responsibility predicted that the UK’s recovery would be founded on investing in big businesses. This would bring more money into the UK and lead to higher wages. While this isn’t the time or place to get into a discussion of the merits (or lack thereof) of trickle-down economics, this plan – that the UK’s businesses would thrive first and then we’d all get a wage increase – doesn’t appear to have materialised.
Instead, we have seen consistently low wages, government cuts of welfare services designed to help those short of money. And – after Brexit – a period of even greater economic uncertainty. During that time, we’ve seen statistics that say the UK GDP (the measure of a country’s total economic activity) has improved and that austerity has worked. And yet, that GDP boost hasn’t been as a result of cuts or trickle-down wealth. It has likely been as a result of consumers spending money they don’t have just to get them through the month.
If you’re struggling with debt or are having money problems, don’t hesitate to seek help and advice. There’s lots of great advice on the Money Advice Service site, or you can contact Step Change for practical solutions.
- Author The Bamboo Team
- Posted 17 April 2018