Londoners hit hardest in the UK by debt, with ethnic minorities and those in deprived areas worst affected

^{17 June 2025}

New research from the Centre for Analysis of Social Exclusion (CASE) based at the London School of Economics and Political Science (LSE), in partnership with StepChange Debt Charity, has mapped over indebtedness within London and shows the interrelationship with area deprivation and ethnicity.

The report hinges on two main focuses, deprivation by area and the impact of ethnicity on debt. The key findings draw on 2023 data from StepChange and wave 13 of the UK Longitudinal Household Survey Understanding Society and shows that:

• London exhibits a higher overall rate of over-indebtedness (13%) compared to the UK average (10%). Also, StepChange's data shows the more deprived an area is, the more adults turn to debt advice services, with ethnic minority groups worst affected.
• The cost of living was the leading reason for debt issues among StepChange clients in London, accounting for one in four responses. But location matters. In less deprived areas, life events hit hardest, whereas in more deprived areas, irregular incomes, reduced income or benefits, and one-off expenses push more people into debt. There are also notable variations by ethnicity.
• London boroughs with higher concentrations of ethnic minorities are often marked by greater deprivation and higher rates of over‑indebtedness. This may be linked to ethnic minority groups in London facing a significantly higher risk of over-indebtedness than their White British counterparts.
• StepChange data shows that ethnic minority groups are less likely to hold most types of unsecured debt, compared to White Brits, but often end up with higher debt balances on average.
• Differences in socio-economic characteristics helps explain why many ethnic minority groups face higher debt levels —but not all. Even in deprived areas, Black African Londoners still face significantly higher over-indebtedness, even after controlling for these differences.

The research also makes a range of suggested interventions and best practices for policymakers, politicians and academics to better understand and manage debt in London. The research calls for policymakers to focus on:

• Introducing an enhanced data infrastructure to better understand how those most in need across different areas and ethnic groups access services, and where gaps exist and how to best fill them.
• Addressing area deprivation and over-indebtedness risk as over-indebtedness aligns with area deprivation, but its drivers are multifaceted. Effective policies and practice should both prevent debt buildup, support those already struggling by boosting financial resilience and address underlying drivers of poverty and deprivation.
• Recognising ethnic disparities as ethnic minority groups face higher over-indebtedness rates, than White Brits, suggesting an “ethnicity premium” in the financial services sector that warrants further exploration.
• Mitigating short-term financial shocks as many StepChange clients - especially from ethnic minority backgrounds - attribute their debt problems to short-term shocks, which points to a lack of financial buffers. Policies should focus on enhancing overall financial stability through emergency savings, better access to low-cost credit, and targeted debt advice services.

Eleni Karagiannaki, Assistant Professorial Research Fellow at LSE, and the report’s author, said:

"The research highlights how area deprivation and ethnicity intersect to shape the complex and uneven landscape of household over-indebtedness in London. One of the most striking and concerning findings is that while financial shocks impact all communities, they are both more frequent and more damaging among ethnic minority groups and residents in poorer areas, often due to lower levels of financial resilience.

"The fact that so many households lack even minimal buffers against short-term shocks is alarming. This points to a widespread lack of financial buffers, such as emergency savings or affordable credit access. Tackling this crisis requires targeted, culturally competent debt and financial advice support, as well as policies that build long-term financial stability through fair credit systems, effective and adequate safety nets, and place- and identity-aware interventions."

Peter Tutton, Director of Policy, Research, and Public Affairs at StepChange, said:

"This research shows how indebtedness in London outstrips the rest of the United Kingdom as cost of living pressures take their toll. It provides crucial insight into the complex and intersecting factors driving over-indebtedness in the capital, particularly the persistent financial challenges faced by ethnic minorities. This underscores that socio-economic characteristics alone cannot fully explain disparities in debt levels. Our client data also shows how people in more deprived areas are more likely to turn to our service for support – as people struggle to manage essential costs.

"We need to see the Government, through the Financial Inclusion Commission, seek to support people to build financial resilience, and expand the no-interest loans scheme to allow people to manage income shocks, as well as broaden access to crisis support and grants.”