Millions of struggling households in the UK are increasingly turning to borrowing as the cost-of-living crisis worsens, according to a report by the Joseph Rowntree Foundation (JRF). The report reveals that 2.3 million low-income families have resorted to loans or credit to cover essential bills during the crisis. Additionally, nearly 6 million low-income families have accumulated unsecured debt, including credit cards, overdrafts, and personal loans, totaling £14.2 billion ($18.2 billion) in May. The interest on this debt amounted to a staggering $5 billion, equivalent to around $868 per family per year.
Despite relying on credit to pay bills, the report highlights that households are still falling behind with their payments. Three-quarters of these families are in arrears with at least one household bill or lending commitment, with 44% in arrears with three or more bills. Moreover, between May 2021 and May 2023, 2.8 million low-income households claimed to have been refused a loan.
Rachelle Earwaker, a senior economist at JRF, warned that the UK is entering a dangerous phase of the cost-of-living crisis. She expressed concern that even with the option of unsecured lending, millions of low-income families continue to face severe material hardship. However, with rising interest rates, it remains uncertain how much longer this option can bear the weight.
Earwaker emphasized the urgency of the situation, saying that the nation is at risk of experiencing a second wave in this crisis as more people struggle to maintain their borrowing in the face of increasing interest rates. She pointed out that while the focus has been on rising mortgage costs, policymakers should also consider the affordability of short-term credit as a vital concern.
The increased cost of living and surging interest rates have had a negative impact on British households, leading millions of families to cut back on spending. Additionally, the Bank of England has warned that households and businesses need to accept that they are poorer and should stop seeking wage increases.
The report’s findings highlight the urgent need for policymakers to address the cost-of-living crisis and provide support for low-income families. It is crucial to find sustainable solutions that alleviate the financial burden on households and reduce reliance on credit. As interest rates continue to rise, it is essential to develop strategies that promote financial stability and prevent further material hardship for vulnerable families.
The current situation calls for a comprehensive and coordinated approach that tackles the root causes of the cost-of-living crisis. This could involve measures such as increasing wages, reducing living costs, and expanding access to affordable housing. It is imperative that policymakers prioritize the affordability of short-term credit and create a supportive environment for families to manage their finances effectively.
In conclusion, the cost-of-living crisis in the UK has led millions of households to rely on plastic or loans to meet basic expenses. The JRF report highlights the alarming number of low-income families resorting to borrowing and accumulating unsecured debt. With rising interest rates, the situation is becoming increasingly precarious, and urgent action from policymakers is needed to address the root causes of the crisis and provide support for struggling households.