Millions of people are now reportedly relying on plastic or loans to cover basic bills and expenses
Struggling British households have been increasingly resorting to borrowing as the cost-of-living crisis has deepened, The Guardian reported on Sunday, citing data by the Joseph Rowntree Foundation (JRF).
According to the JRF, 2.3 million low-income families have been taking out loans or using credit to pay essential bills during the crisis. The report also indicated that nearly 6 million low-income families have unsecured debt, such as credit cards, overdrafts, and personal loans from banks, credit unions and payday lenders. In May, they owed £14.2 billion in total ($18.2 billion), while interest on this debt was $5 billion, equivalent to about $868 a year per family.
The report further noted that using credit to pay bills was not preventing households from falling behind with payments. Three-quarters of them had arrears with at least one household bill or lending commitment, with 44% in arrears with three or more bills. Meanwhile 2.8 million low-income households said they had been refused a loan between May 2021 and May 2023.
“The cost-of-living crisis is entering a dangerous new phase,” a senior economist at JRF Rachelle Earwaker was quoted as saying. “Even at this apparent peak in economic suffering, millions of low-income families continue to rely on the lifeline of unsecured lending to prevent them falling even further into severe material hardship. But with interest rates continuing to rise, it remains unclear how much more weight this option can bear,” she noted.
Earwaker added that the nation was at risk of “the tragedy of a second wave in this crisis, as millions of people struggle to maintain their borrowing in view of rising interest rates.” The economist pointed out that “the fragility of the current situation ought to be a preoccupation for policymakers everywhere, but on the contrary, it is in danger of being overlooked. While rising mortgage costs dominate the national conversation, the affordability of short-term credit should also be a factor of vital concern.”
Surging interest rates and increased cost of living have taken a toll on British households, forcing millions of families to cut back on spending. Meanwhile, the Bank of England warned earlier this year that British households and businesses needed to accept that they were poorer and should stop asking for wage increases.
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August 01, 2023 at 11:30AM