£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

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.

News
Jeremy Paxman has admitted he is a 'one-nation Tory' and complained that Newsnight is made by idealistic '13-year-olds' who foolishly think they can 'change the world'.
peopleThe idea has been greeted enthusiastically by the party's MPs
News
Michael Buerk in the I'm A Celebrity jungle 2014
people
Arts and Entertainment
Avatar grossed $2.8bn at the box office after its release in 2009
filmJames Cameron is excited
Voices
File: David Cameron offers a toast during a State Dinner in his honour March 14, 2012
voicesAnd nobody from Ukip said babies born to migrants should be classed as migrants, says Nigel Farage
PROMOTED VIDEO
Arts and Entertainment
Stik on the crane as he completed the mural
art
News
Happy in his hat: Pharrell Williams
people
Arts and Entertainment
Stella Gibson is getting closer to catching her killer
tvReview: It's gripping edge-of-the-seat drama, so a curveball can be forgiven at such a late stage
News
Brazilian football legend Pele pictured in 2011
peopleFans had feared the worst when it was announced the Brazil legand was in a 'special care' unit
News
i100(More than you think)
Sport
Brendan Rodgers seems more stressed than ever before as Liverpool manager
FOOTBALLI like Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
News
The number of GP practices with 10 or more doctors has grown by 75 per cent
science
News
Phyllis Dorothy James on stage during a reading of her book 'Death Comes to Pemberley' last year
peopleJohn Walsh pays tribute to PD James, who died today
Sport
Benjamin Stambouli celebrates his goal for Tottenham last night
FOOTBALL
Life and Style
Dishing it out: the head chef in ‘Ratatouille’
food + drinkShould UK restaurants follow suit?
News
peopleExclusive: Maryum and Hana Ali share their stories of the family man behind the boxing gloves
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Argyll Scott International: Service Desk Analyst

    £20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...

    Argyll Scott International: 2x Service Desk Analyst

    £20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...

    Recruitment Genius: Senior Execution Trader

    £30000 - £250000 per annum: Recruitment Genius: A global Rolling Spot FX, Comm...

    Citifocus Ltd: ACA - Financial Reporting

    £Attractive Package: Citifocus Ltd: Chartered accountant (ACA or CPA), must be...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game