Millions of low-income households have been plunged into ‘problem debt’ as the real value of UK wages has plummeted by more than 10% in just eight years, according to shocking new research from UNISON and the Trade Union Congress (TUC).
The report, Britain in the Red, also found that total unsecured debt for UK households has rocketed from £48bn in 2012 to reach a staggering £353bn in 2015. This includes unsecured debts like credit cards, bank loans, payday loans and student loans, but does not include mortgages.
The conventional method of measuring the affordability of debt looks at the level of interest payments compared to gross incomes, but fails to account for rising living costs since 2008.
According to the report, 3.2 million households are in ‘problem debt’, defined as paying out more than 25% of their gross annual household income on unsecured debt repayments.
Meanwhile, 1.6 million households have seen their money worries grow by such an extent they are are now in ‘extreme problem debt’, defined as paying out more than 40% of their annual gross household income on unsecured debt repayments. Of these, and an estimated 1.2 million have a household income below £30,000 per annum.
The report warns that extreme problem debt has almost doubled from 5% of low-income working households in 2014 to reach 9% last year (2015).
[contextly_sidebar id=”qc3jLtoNuI6QVWJKusEBLReM5owswb3F”]OECD data shows UK real wages declined by 10.4% between 2007 and 2015, the largest decline of all major OECD economies, equaled only by Greece. While household debt hasn’t grown every year since the economic crash, the drop in UK real wages means millions of households have been left struggling to manage existing debts.
Both the TUC and UNISON fear the number of households in problem debt could continue increasing, with Bank of England statistics revealing that consumer credit is growing at an annual rate of 10% – the highest growth rate for more than a decade.
TUC General Secretary Frances O’Grady said: “Families can’t continue relying on credit cards and loans to get by. But with the average weekly wage still worth £40 less than before the 2008 crash, lots of families have little choice.
“Higher wages must be at the heart of the government’s economic plan. We need a return to proper year-on-year pay rises, and a higher national minimum wage.
“And 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.”
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.”