On Sunday, the Guardian reported that as British households have been struggling under the growing cost of living crisis, consumers have increasingly turning to borrowing, according to new data released by the Joseph Roundtree Foundation (JRF).
The new data from the JRF shows that 2.3 million low-income families have been paying their essential bills during the crisis by taking out loans, or putting their payments on credit cards, overdrafts, and personal loans from banks. The report also found that there are almost 6 million low-income households which have unsecured debt, such as loans from credit unions, credit cards, or payday lenders. As of May, those loans totaled to £14.2 billion ($18.2 billion), while the interest on that debt amounted to $5 billion, which adds up to about $868 per year for each family.
The report also noted that the debt-usage was not stopping households from missing payments and falling behind on their bills. Three quarters of households were in some state of arrears with at least one billing entity or lending commitment, while 44% were behind with three or more bills. Another 2.8 million low-income households reported that between May of 2021 and May of 2023 they had been refused a loan.
A senior economist at JRF, Rachelle Earwaker said, “The cost-of-living crisis is entering a dangerous new phase. Even at this apparent peak in economic suffering, millions of low-income families continue to rely on the lifeline of unsecured lending to prevent them falling even further into severe material hardship. But with interest rates continuing to rise, it remains unclear how much more weight this option can bear.”
Earwaker went on to note that there was a risk of, “the tragedy of a second wave in this crisis, as millions of people struggle to maintain their borrowing in view of rising interest rates.” She went on to highlight that, “the fragility of the current situation ought to be a preoccupation for policymakers everywhere, but on the contrary, it is in danger of being overlooked. While rising mortgage costs dominate the national conversation, the affordability of short-term credit should also be a factor of vital concern.”
British households have been economically battered by persistent inflation and a growing cost of living crisis which has forced millions of households to reduce their spending to the bare necessities. At the same time, the Bank of England has officially stated to citizens that British households risk making the crisis worse if they do not just accept that they are now poorer, and stop asking to have their salaries made sufficient to meet their costs of living.
