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Debt, ethnicity and local area deprivation in London

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StepChange in partnership with the Centre for Analysis of Social Exclusion (CASE) based at the London School of Economics and Political Science (LSE) set out to explore household over-indebtedness and debt advice reach within London and investigate their relationship and interrelationship with area deprivation and ethnicity.

The paper draws on the data from the StepChange clients' database for 2023 and wave 13 of the UK Longitudinal Household Survey Understanding Society data, and found that:

Area Deprivation and Over-Indebtedness in London

  • London not only exhibits a higher overall rate of over-indebtedness (13%) compared to the UK average (10%) but it also exhibits greater variation: in the five most deprived London Boroughs, over-indebtedness jumps to 19%, nearly triple the rate in the five least deprived ones (6%).
  • A similar picture emerges based on the StepChange's 2023 data, the more deprived an area is, the more adults turn to debt advice services.
  • 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 like divorce/separation, pregnancy/childbirth, and care responsibilities hit hardest. In more deprived areas, irregular incomes, reduced income or benefits, and one-off expenses push more people into debt.

London’s striking ethnic debt divide

  • Ethnic minorities in London are far more likely to struggle with debt. According to survey data from Understanding Society, over-indebtedness affects 28% of Black African Londoners, 24% of Black Caribbeans, and 22% of Pakistani or Bangladeshis – much higher than the 8% among White British groups.
  • London boroughs with higher concentrations of ethnic minorities are often marked by greater levels of area deprivation and higher rates of over‑indebtedness.
  • Differences in socio-economic characteristics help explain why many ethnic groups face higher debt—but not all. Even in deprived areas, Black African Londoners still face significantly higher over-indebtedness, even after controlling for these differences.
  • Reasons for debt vary significantly by ethnic background, with clients from ethnic minority backgrounds more likely to cite irregular incomes, reduced income or benefits, or pressures related to pregnancy or childbirth – while their White British counterparts are more likely to report separation/divorce, credit reliance to cover living costs, or lack of financial control.
  • StepChange data shows that ethnic minority groups are less likely to use most types of unsecured credit—but often end up deeper in debt and have higher average debt levels.

The research sets out some interventions and best practice to policymakers and politicians and suggests that there should be a focus on:

  1. 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.
  2. Addressing area deprivation and over-indebtedness risk

    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.
  3. Recognising ethnic disparities

    All ethnic minority groups face higher over-indebtedness rates than White Brits, suggesting an "ethnicity premium" in the financial services sector that warrants further exploration.
  4. Mitigating short-term financial shocks

    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.
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Want more information?

Email us to discuss 'Debt, ethnicity and local area deprivation in London' at policy@stepchange.org or reach out to CASE at LSE.