We need to talk about debt

As Christmas approaches, many people will be wondering where to find the extra funds for the perfect family day. In 2013, the Money Advice Service estimated that the average cost of Christmas was close to £500 per family. That may not seem like a huge amount, but for many families it can be the tipping point that pushes them into debt or significantly increases their existing debt levels.

Tackling the UK’s burgeoning personal and household debt problem is an issue of increasing concern. October saw the launch of a new cross-party commission to help low income households struggling with debt.

Funded by Mastercard and with a membership made up of the great and the good, it aims to make financial inclusion a national priority ahead of the 2015 general election. It will explore the measures needed to extend access to financial services to those excluded and try to secure a pledge to tackle the problem in the manifestos of all major UK political parties.

The problem is very real. StepChange, the debt advice charity, estimates that problem debt costs society £8.3bn. This is because household debt affects mental and physical health, hurts productivity and employment prospects, strains relationships and threatens families. Dealing with the consequences of problem debt leads to costs for employers, local government, carers, the NHS and the welfare budget.

Without a clear strategy for tackling debt

many more families will fall off the tightrope

To tackle this issue, Stepchange has called on government to adopt measures including help for people on low and middle income to build up savings; to commit to high standards in debt collection practices where it acts as creditor; and scaling up of the free debt advice sector so that it can tackle the level of existing demand.

The Money Charity has recently produced figures showing the scale of Britain’s indebtedness. In a report in October, they stated that average household debt (including mortgages) in August was just over £55,00o; Citizens Advice are dealing with 6,405 new debt problems every working day; and outstanding consumer credit debt at the end of August 2014 was £162.6bn.

The Competition and Markets Authority (CMA) also published a report into problem debt which examined how it affects consumers’ decisions and choices in the goods and services that they purchase. Stating that debt is one of the most serious problems facing consumers today, the CMA highlights four key areas of work that are central to tackling this issue. These include building people’s skills so that they can manage their finances and make sound financial decisions and providing early debt advice to support an early resolution of debt problems.

While there is renewed interest in tackling debt, it is not a new issue. A new book by Damon Gibbons, Britain’s Personal Debt Crisis, charts the expansion of consumer credit since the 1960s. But it is the toxic combination of rising debt levels, wage stagnation and an ongoing squeeze on living standards that means many families are walking a financial tightrope.

So what needs to be done? Gibbons recommends a national strategy for debt advice provision supported by a secure funding stream; a rescue package for households as part of a broader economic strategy; and containment of credit expansion.

Without a clear strategy for tackling debt, which is backed by political commitment and adequate funding, many more families will fall off the tightrope with devastating consequences for them, their communities and the economy.