Millions of low-income households in debt, say TUC, UNISON

Unsecured debt has increased for UK households, in part due to wage stagnation, according to two trade unions.

Over a million families with a household income below £30,000 are in extreme debt and wage stagnation is making the problem worse, a report by the Trades Union Congress (TUC) and the trade union for public sector workers (UNISON).

Unsecured debt, excluding mortgages, for households across the UK rose by £45bn to £353bn between 2012 and 2015.

About 3.2m households are in problem debt, which means paying out more than 25% of a household’s gross income on secured debt repayment. This is the equivalent to one in eight households.

The Britain in the Red report found that 1.6m households were in extreme problem debt, households paying more than 40% of gross income on unsecured debts, the equivalent to one in 16 households. Of the 1.6m, 1.2m are thought to have a household income below £30,000.

Extreme problem debt has nearly doubled since 2015 to 9% of low income families in 2015.

The Bank of England said that consumer credit, which is part of unsecured debt, was growing annually by 10%, the highest growth rate for over a decade.

As unsecured debt has increased, the report said wages have stagnated. The Organization for Economic Cooperation and Development (OECD) found that real wages in the UK fell 10.4% between 2007 and 2015.

TUC general secretary Frances O’Grady said that higher wages need to be at the heart of the government’s economic plan with year-on-year pay rises, and a higher national minimum wage.

“We need public investment in major infrastructure projects to create more well-paid jobs and build a stronger economy. The government must also do more to help low-income families struggling with problem debt in getting access to debt restructuring and insolvency support,” O’Grady said.

UNISON general secretary Dave Prentis said: “Many of those affected by debt will be public service workers who have suffered eight years of zero pay rises, followed by a government imposed cap on earnings.

“This report rightly draws a link between increased debt and stagnant wage growth at a time when rent and transport costs continue to rise. Many families are having to make choices between paying the rent and feeding their kids.”