£1,430,000,000,000 (that's £1.43 trillion): Britain's personal debt timebomb
Average household debt is now £54,000 - double the level a decade ago, despite record low interest rates, and ministers fear that failure to pay back loans and credit will leave thousands at risk of losing their home
Andrew Grice has been Political Editor of The Independent since 1998. He was previously Political Editor of The Sunday Times, where he worked for 10 years, and he has been a Westminster-based journalist since 1982. His column, Inside Politics, appears in The Independent each Saturday.
Wednesday 20 November 2013
Britain faces a timebomb as the cost of living crisis forces more people into crippling debt they will not be able to repay, according to a major study published today.
The Centre for Social Justice (CSJ) think tank, founded by Iain Duncan Smith in 2004, warned that two of the flagship policies he is implementing as Work and Pensions Secretary - the “bedroom tax” and universal credit - could plunge more people into debt. It revealed that more than 5,000 people are already being made homeless each year because they cannot pay their mortgage or rent.
The study, “Maxed Out,” said that despite the return to economic growth, personal debt in the UK totals £1.43 trillion, close to its all-time high. Average household debt stands at £54,000 - almost twice the level a decade ago. Although much of it stems from mortgages, the report warned that poor people were hit hardest as unsecured consumer debt almost tripled in the last 20 years to nearly £160bn.
According to the CSJ, households owe the equivalent of 94 per cent of the UK's economic output last year. Only Ireland has a higher ratio of personal debt to GDP amongst European countries.
Privately, ministers are worried that, while interest rates have been held at a record low of 0.5 per cent, less personal debt has been repaid in the UK than countries like the United States. The Bank of England will consider raising rates when unemployment falls from its current 7.6 per cent rate to 7 per cent, triggering a rise in mortgage rates for millions of home-buyers.
The CSJ said more than 26,000 UK households have been classed as “homeless” by local authorities in the past five years, and warned that the number could increase if interest rates rises. Some 3.9m families do not have enough savings to cover their rent or mortgage for more than a month.
Another timebomb is the number of people retiring before they have paid off their mortgage. About 40,000 interest-only mortgages are due to mature each year between 2017 and 2032 where the householder will be over 65. Between now and 2020, a third of the shortfalls on endowment mortgages will amount to more than £50,000.
Although the CSJ backed the principle of the “bedroom tax” imposed on tenants in public housing, it said the “spare room subsidy” should not have been removed unless they had refused a “reasonable offer” to “downsize” or work longer hours. It warned there had been “genuine confusion” about the impact of the change and discovered that some local authorities are failing to fully allocate their share of the £25m set aside for discretionary housing payments.
“The potential short-term impact of removing the spare room subsidy on rent arrears is concern in relation to the threat of problem debt,” said the report. There was evidence of some “property swaps” being put on hold until tenants had paid off all their rent arrears, which risked more debts piling up.
The CSJ, which originally proposed the merging of benefits into a universal credit, expressed concern that switching to monthly payments might fuel debt problems. Pilot schemes found that 17 per cent of tenants got behind with their rent and the CSJ warned: “Unnecessary and unmanageable debt would severely undermine the important principle behind this welfare change.”
Christian Guy, the CSJ's director, said problem debt has “taken root in the mainstream of British society.” He added: “Years of increased borrowing, rising living costs and struggling to save has forced many families into a debt trap that is proving very difficult to escape. Some of the poorest people in Britain are cut off from mainstream banking and have no choice now but to turn to loan sharks and high-cost lenders.”
Today's study found that payday lenders have grown their business from £900m in 2008-09 to more than £2bn. The number of people using illegal loan sharks has risen to more than 310,000 each year. “Their use of violence and intimidation terrorises people and communities, enforcing a 'veil of silence' that allows them to escape detection,” said the report.
Warning that debt is rising “at an alarming rate”, the CSJ concluded: “Unless proactive steps are taken, problem debt in the UK will continue to grow unabated. The current levels of debt are worrying because they not only have severe financial implications,but also more wide-ranging impacts on people's mental health, family stability, and ability to work. These are especially pronounced amongst low-income households and the vulnerable.”
Dr John Sentamu, the Archbishop of York, said yesterday that food banks will “not go away any time soon” amid a “new and terrible” rise in poverty. He told the General Synod of the Church of England that the number of people being admitted to hospital with malnutrition is a “dark stain on our consciences.” The Independent revealed on Monday that the number of cases treated at NHS hospitals has almost doubled since the economic downturn.
- 1 Raif Badawi, the Saudi Arabian blogger sentenced to 1,000 lashes, may now face death penalty
- 2 PornHub turns masturbation into energy in bid to save the planet
- 3 Robert Mugabe eats a zoo for 'obscene' 91st birthday party
- 4 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
- 5 The jihadi girls who went to Syria weren't just radicalised by Isis — they were groomed
New theory could prove how life began and disprove God
This is what it's like to be dead, according to a guy who died for a bit
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Ukip would cut billions from Scottish budget to fund English tax cuts
Russia's roadmap for annexing eastern Ukraine 'leaked from Vladimir Putin's office'
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
iJobs Money & Business
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads