Millions of people are living on the edge of problem debt, warns StepChange debt charity. It says the growth in zero-hours contracts, self-employment and other less secure work has left more people susceptible to sudden falls in income which can leave them relying on costly credit to get by. That in turn can lead to a damaging debt spiral.
Insecure work exposes people to income shocks and the risk of problem debt, the charity says. Its research suggests two-thirds of people on a zero-hours contract suffered an income shock in the last year. It warns that overall, people in insecure forms of work are twice as likely to suffer income shocks as those in permanent jobs.
The risk of facing income shocks is compounded by both a lack of financial resilience - such as having no rainy day savings - and safety nets that too often fail to provide adequate support.
With real-term wages still only at 2005 levels, households have little spare income to help protect themselves from any income shocks that strike.
The charity warns that many use credit as part of a coping strategy, which often has dangerous consequences. Nearly three-quarters of people who fell into problem debt relied on credit cards and overdrafts or borrowed from friends and family; half of people applied for benefits and one in five used high-cost credit or used foodbanks, credit unions or other not-for-profit providers.
Mike O’Connor, chief excutive of StepChange, said: “People have always faced ups and downs, but the changing nature of work means that income shocks are now a regular feature of more people’s lives.
These changes may be here to stay and social policies need to reflect the new normal. Our social policy is not keeping up with our economic policy.”
The charity reckons 14 million Brits suffered an income shock in the last year.
“We need mechanisms and safety nets that will ensure that a drop in income doesn’t precipitate a rapid fall into problem debt," Mr O'Connor said.
"People, especially those on low incomes, need more help to build precautionary savings. Our welfare system should respond to people’s needs and help them cope with short-term ups and downs so that a temporary change in circumstance does not become a serious and entrenched financial problem.”
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