Millions of families struggling with extreme debt, say unions

Millions of families are struggling with extreme debt, according to trade unions, who demand the Government act to bring about higher wages to prevent the problem getting worse for the low paid.

The TUC and Unison say the number of families struggling with credit cards, bank loans, payday loans and student loans has increased dramatically while wages have fallen.

This includes 3.2 million households who are paying more than 25 per cent of their gross earnings in unsecured debt repayments – which amounts to one in eight households – according to a new report.

Britain in the Red, published today by the workers’ groups, reveals there are 1.6 million families in “extreme problem debt” in which they contribute over 40 per cent of their income towards paying off debts. This is combined with the pressures of low wages, where 75 per cent of households in extreme problem debt earn below £30,000 a year.

The report also shows that unsecured debt rose by £48bn last year to £383bn, and the number of households in extreme problem debt nearly doubled from 5 per cent to 9 per cent of all low-income households.

Additionally, real wages declined by 10.4 per cent since the financial crash, meaning that families were less likely to be able to pay off their debts.

Consumer credit debt – such as that secured on credit cards – has almost increased to the same levels it was before the financial crisis, while the burden of repaying this has increased due to a rise in the cost of living impacting the levels of disposable income available to a family.

The figures do not include mortgage debt, a significant cost for millions of families, which is secured against the house itself.

Frances O’Grady, TUC General Secretary, demanded a higher minimum wage and a return to year-on-year pay rises.

“Families can’t continue relying on credit cards and loans to get by. But with the average wage still worth £40 less than before the 2008 crash, lots of families have little choice.

“Higher wages must be at the heart of the government’s economic plan. We need a return to proper year-on-year pay rises, and a higher national minimum wage.

“And we need public investment in major infrastructure projects to create more well-paid jobs and build a stronger economy.

“The government must also do more to help low-income families struggling with problem debt in getting access to debt restructuring and insolvency support.”

Dave Prentis, head of Unison, criticised the Government’s pay freeze for public sector workers for contributing to the crisis.

“Many of those affected by debt will be public service workers who have suffered eight years of zero pay rises, followed by a government imposed cap on earnings.

“This report rightly draws a link between increased debt and stagnant wage growth at a time when rent and transport costs continue to rise. Many families are having to make choices between paying the rent and feeding their kids.”