Coming on top of fourteen years of stagnant incomes and a global pandemic, the latest cost of living crisis threatens to pull millions more people into debt. This is a political choice, not an economic inevitability and we need to respond by growing the movement for debt justice.
Before this latest crisis at least 8.5 million adults in the UK were over-indebted – meaning that they found keeping up with bills and repayments a heavy financial burden. Our analysis of Bank of England data from September 2021, before Universal Credit was cut and inflation rose sharply, found that over-indebtedness had already risen by a third. The research suggests that an extra 1.3 million people became over-indebted in 2021.
Our recent polling reveals the current scale of the crisis. Half the UK adult population are now either in debt or concerned about falling into debt. An extra three million people now expect to be pushed into debt over the next six months. Our calculations from the polling show the devastating impact of debt on people on low incomes, with over a third of those people heavily in debt and spending at least 40% of their monthly incomes on repayments.
To quote US debt campaigner Astra Taylor it is becoming increasingly clear that “most people are not in debt because they live beyond their means; they are in debt because they have been denied the means to live.”
The UK household debt crisis is unlikely to play out like the great financial crisis of 2008, a global financial shock with TV news showing bankers leaving their offices clutching boxes. It is largely hidden, unfolding in kitchens and front rooms. It’s millions of people hiding bills and having sleepless nights. It is the slow shrinking of horizons and spending all your waking hours and emotional energy focused on how to make ends meet.
People in debt often describe the experience like drowning – the combination of shame and stigma, as well as a lack of routes out can have tragic consequences. The Money & Mental Health Institute found that 50% of people in debt have a mental health problem and every year over 400,000 people in problem debt in England consider taking their own life.
We fully support calls from trade unions, charities and the wider economic justice movement for the government to urgently address the cost-of-living crisis to prevent more people falling further into poverty and debt. At the same time the government needs to address the build-up of unpayable debt through a ‘fair debt write down’.
There is exploitation at every stage of the commercial lending and collection process. From aggressive marketing and miss-selling, exorbitant fees and interest rates to traumatic bailiff visits. Even those that get access to some sort of write down of their debt often have to a pay a fee for the privilege.
Most people are expected to repay their debts in full, mostly through debt management plans that can trap them in poverty for up to 20 years. This is clearly unjust when these very same debts are being sold on and revalued on secondary markets every day. Everyone deserves a fresh start and an opportunity to rebuild their lives and we propose a rolling ‘debt restructuring fund’ created by the government and used to buy out those debts which have already been devalued.
We estimate that as much as 70 per cent of the face value of these debts could be written off through this mechanism, which wouldn’t cost anything in the long run, and would significantly reduce the amounts that people in debt would need to repay.
Creditors seek to extract every penny from their borrowers, but we are bringing together people in debt to resist, demanding dignity and freedom from poverty.