Mountain of debt: Average household now owes £16,200, analysis shows

2022-12-29

Families’ growing mountain of debt: With tax burden highest since the war, average household now owes £16,200, analysis shows

Average household has £16,200 in unsecured debt such as loans and overdrafts
Experts have warned that nearly nine million adults are ‘financially fragile’
Poll shows 60 per cent expect to deliver further hit to their finances next year
Total amount of unsecured debt across the UK has topped £400billion

Millions of families are struggling with a growing mountain of personal debt as unsecured borrowing hits record levels.

Startling research shows the spiralling cost of living has forced many to borrow simply to pay for essentials such as food and energy.

The average household now has £16,200 in unsecured debt such as loans, overdrafts and credit card borrowing – up £1,000 on a year ago. Experts have warned that nearly nine million adults are ‘financially fragile’.

And many fear things will only get worse – with a poll showing 60 per cent expect the next year to deliver a further hit to their finances.

The average household now has £16,200 in unsecured debt such as loans, overdrafts and credit card borrowing – up £1,000 on a year ago. [File image]

The revelations come as the Government faces pressure to act over its plans to hike taxes from April.

The total amount of unsecured debt – which does not include mortgages – across the UK has topped £400billion, according to analysis by accountants PwC.

As families borrow just to make ends meet, the average amount of unsecured debt has risen by more than £1,000 – or 7.2 per cent – in the past year alone.

Separate research from the Resolution Foundation think tank warns 2023 will be ‘groundhog year’ for many as they continue to face high taxes, rising interest rates and inflation.

Critics have questioned why Chancellor Jeremy Hunt is hiking taxes in April when households are already under enormous financial strain. Former Tory leader Sir Iain Duncan Smith urged the Chancellor to take another look at his tax rises in light of the research.

He said: ‘It’s an indication that we desperately need to get taxes down and the economy growing again where people are better off. The whole thing about getting the economy moving again is that it will help enormously with the cost of living crisis.

As families borrow just to make ends meet, the average amount of unsecured debt has risen by more than £1,000 – or 7.2 per cent – in the past year alone. [File image]

‘To solve this, we need to get the economy going through tax cuts.’

This week, the Daily Mail revealed how a Treasury review of the tax system has been quietly ditched, prompting fears among Tories that the Government is not serious about cutting back what has ballooned into a record tax burden.

Torsten Bell, chief executive of the Resolution Foundation, said: ‘From a cost of living perspective, 2022 was a truly horrendous year – far worse than any year in the pandemic or financial crisis.

‘Next year should see the back of double-digit inflation, but it looks set to be a groundhog year for many families whose incomes look set to fall by just as much as they did in 2022.’

A typical middle-income household is set to see their personal tax bill rise by around £1,000 from next April, according to the Resolution Foundation.

It follows a series of hikes announced by Mr Hunt in his Autumn Statement, which will leave Britons facing the highest tax burden since World War Two. A poll today reveals 60 per cent fear next year will be even worse for their finances than 2022.

The GB News survey found just 4 per cent were ‘completely’ or ‘fairly’ confident in the ability of Rishi Sunak and Mr Hunt to help their financial situation, with 70 per cent saying they were ‘not confident at all’.

The rise in ‘financial fragility’, defined as those who may need to use their overdraft just to cover essentials, comes after families saw their real incomes fall steadily throughout 2022. The record personal debt level of £16,200 was described as ‘startling’ by Isabelle Jenkins, leader of financial services at PwC UK.

Ms Jenkins said: ‘For most borrowers, credit performs an important function – smoothing income and expenditure which, if affordable, can be beneficial.

‘However, unaffordable lending and borrowing can cause real harm to individuals and society, and vulnerable consumers can be disproportionately affected.’

The research from PwC and credit app TotallyMoney also showed that 20.2 million adults are now likely to be ‘locked out’ of mainstream banking services, for example because they have poor credit history.

This may push thousands of individuals towards high-cost payday lenders, or into the jaws of loan sharks.

Hard-up ditch saving for pensions to pay bills

Millions of Britons have abandoned making contributions to their pensions so that they can afford soaring shopping and energy bills.

One in five pension savers has either stopped or cut payments into their retirement pots over the past year, according to the Pensions Management Institute, a professional body.

Worryingly, a further 20 per cent are considering doing the same over the next year. And 17 per cent of those old enough to do so have taken money from their pensions to meet immediate needs.

According to a survey conducted by the institute, some 40 per cent of pension savers are feeling the impact of the cost-of-living crunch – and it expects this number to rise as higher energy bills and tax increases take effect in the new year.

The institute’s president Sara Cook said: ‘The pressures of meeting short-term needs for cash have forced many people to make decisions which could have serious implications for their longer-term financial security.’

She said savers were aware of the consequences of cutting payments into pensions, but felt they had no alternative.

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