Research from the Trade Union Congress (TUC) has shown that the average amount of unsecured debt per UK household has increased to a record high of £12,887.
The total amount of unsecured debt nationwide has reached £349 billion. This figure, which does not include secured debts like mortgages, works out to an average of 27.4% of each household’s income.
The Bank of England’s national debt figures come in lower, but largely because, unlike the TUC, they do not include student loans in their calculations. According to the Bank, total national debt stood at £192 billion by November last year.
According to the TUC, weak wage growth over the past year is largely to blame for the increase in household debt, as families are finding their incomes ever more stretched, particularly with inflation starting to creep back up.
The TUC’s general secretary, Frances O’Grady, called on the government to do more to help struggling working people. Otherwise, she said, next year is likely to be a tough one.
She said: “These increases in household debt are a warning that families are struggling to get by on their pay alone. Unless the Government does more for working people, they could end the new year poorer than they start it.
“Employment may have risen,” she went on, “but wages are still worth less today than nine years ago.”
She warned that the government is currently “relying on debt-fuelled consumer spending to support the economy, with investment and trade in the doldrums since the financial crisis.”
Similarly, the head of the Money Advice Trust, Joanna Elson, said: “This surge in unsecured debt is something that we should all be concerned about, particularly as we are entering uncertain times for the UK economy.”
However, the Bank of England’s chief economist Andy Haldane said that the story told by these latest figures is not such gloomy one. Rather than high levels of household debt being nothing but a sign that people are finding it impossible to get by on historically low wages, he argued that at least part of it is down to consistently low interest rates making borrowing a more viable option.
“Interest rates are still very low,” he said, “and are expected tor remain so for the foreseeable future, so there are fewer concerns on debt servicing that there were in the past.
“There are reasons not to be too alarmed about it ticking up, but it is absolutely something we will watch carefully.”
Elson agreed that “the majority of borrowers will be able to cope with this extra debt”. Nonetheless, she insisted, there is a danger that, should the economy not fare so well through next year, they may well end up struggling.
“Some households risk finding themselves exposed to sudden changes in financial circumstances,” she said.