Debt rises sharply among lower income UK households - Resolution Foundation

Low-income households have seen a sharp rise in their debt since the financial crisis and could be too exposed to financial shocks, warned the Resolution Foundation in a new report on Wednesday.

The foundation said that the proportion of low-income households using some form of consumer debt rose by 9.0% (from 53.0% to 62.0%) between 2006-08 and 2016-19 – a far steeper increase than the one percentage point rise (to 64%) among high-income households.

Nonetheless, in the report, which explores the changes in the use of consumer debt – including credit cards, store cards, mail order and hire purchases, and car finance – the researchers also said that common fears of another debt-fuelled financial crisis were overblown.

The report also revealed that overall consumer debt levels remain significantly below pre-crisis levels (15% of total income last year, compared to 19% in 2008), while historically low interest rates have driven down the cost of debt.

This rising use of consumer debt had been concentrated in products with high interest rates that had not gotten cheaper over the past decade.

The Resolution Foundation said that policy-makers should focus on the rising use of consumer debt among potentially vulnerable groups, and the types of credit they are using.

They also warned that more than half (53%) of low-income households with consumer debt were already reporting difficulties in meeting accommodation costs in 2016-19, up from one-in-three households in 2006-08.

Kathleen Henehan, Policy Analyst at the Resolution Foundation, said: “Access to new credit can be hugely beneficial for low-income families, but with many also reporting that they have no savings to fall back on, these high debt repayment pressures are a sign of stretched living standards.

“The risk is that this leaves them far too exposed to future financial shocks, reinforcing the need for policy makers to focus on the living standards of those on low and middle incomes.”