Problem debt costs the UK £8.3bn

_{8 October, 2014}

Problem debt costs the UK £8.3bn through the damage it causes to family life, mental and physical health, productivity and employment prospects and costs to the welfare state, the NHS, local government and other agencies, according to a major new report released today (October 8) by StepChange Debt Charity^[1].

Commenting on the findings, Mike O’Connor, Chief Executive of StepChange Debt Charity said: “It is not just individuals who bear the costs of problem debt.  Problem debt costs all of us, families, businesses and communities. Lifting the scourge of problem debt and helping prevent it occur in the first place makes sound economic sense.  We need to see a concerted effort, especially with interest rate rises around the corner, by public bodies, lenders and charities to help people who are in trouble now or are in danger of getting into difficulty.”

How debt costs add up to £8.3bn

Housing: £2.8bn – as people fall behind on their rent or mortgage payments, they will increasingly be at risk of losing their home or being forced to move. This results in additional housing benefit payments, eviction costs, homelessness prevention and support, and moving costs.

Employment: £2.3bn – the stress and anxiety caused by debt can undermine economic productivity, prolong unemployment and can lead to job loss, leading to substantial additional costs to the welfare bill.

Mental health: £960m – there is a well-established link between debt and mental health problems. Being in problem debt doubles your chance of suffering from mental health problems^[2]. Stress and anxiety can lead to greater reliance on NHS and other mental health support services.

Relationship breakdown: £790m – the added strain placed on relationships can lead to separation and divorce, with potential added costs in the form of setting up a new home, legal fees, maintenance payments and costs for bodies such as the Child Support Agency.  Seven percent of the parents in problem debt split up as a result^[3].   

Elderly care costs: £658m – the stress of dealing with debt can lead to deteriorating health and result in the need for earlier and additional care.

Other costs: £800m – a combination of additional costs including the failure of small businesses, the increase costs of children taken in to care, and worse educational and employment outcomes for young people all contribute to the £8.3bn social cost of debt.

Although the economy is growing at a macro level, there is still £162bn worth of outstanding consumer credit in the economy^[4] and there are millions of people who are struggling with debt: research by StepChange Debt Charity shows that there are 2.9m people in problem debt in the UK. Millions more are just coping and are vulnerable to income or cost shocks such as a rise in interest rates. Previous research by the charity showed that thee million people are using credit to keep up with existing credit and 13m people don’t have sufficient savings to last a month if their income dropped by a quarter^[5].

More needs to be done to tackle problem debt and help families living on a financial knife edge.  There is a need for a comprehensive debt plan involving governments, local authorities, and the private and voluntary sector. This should include:

• New measures to support savings to help insulate household budgets. UK households save less than almost any country in the EU and we badly need to regain the savings habit;
• A breathing space scheme to protect people who confront their debt problems, seek advice and pay what they can afford.  They should be protected against spiralling interest and charges and enforcement action by creditors.   

StepChange Debt Charity Chief Executive Mike O’Connor added: “Problem debt is a brake on people’s capacity to work, or to return to work, a brake on aspiration and a brake on potential.  The impact affects us all and we cannot afford to walk on by. Some people will always get into debt, but we need to prevent problem debt as much as we can and have practical solutions to help people when they do.” 

Notes to editors:

1. Cutting the cost of problem debt – A report by StepChange Debt Charity
2. Debt and Depression: Casual Links and Social Norm Effects (pdf)
3. The Debt Trap – A report by StepChange Debt Charity and The Children’s Society
4. Quarterly amounts outstanding of total (excluding Student Loans Company) sterling net secured to individuals (in sterling millions) seasonally adjusted – Bank of England
5. Life on the Edge – A report by StepChange Debt Charity
6. StepChange Debt Charity defines “problem debt” within the context of this report as people showing three signs of financial difficulty as identified in the charity’s Life on the Edge report.
7. Further details about StepChange Debt Charity are available on our Notes to editors page.