Problem Debt setting the UK economy back £8.3bn, according to StepChange


October 2014

Problem Debt setting the UK economy back £8.3bn, according to StepChange

Personal Debt within the UK is fast becoming a public conundrum, as influential charity StepChange state that individuals wallowing in arrears are setting the UK back a projected £8.3bn.

This swollen total results from the cumulatively detrimental effect debt has on household spending, breadwinnersí stress levels, borrowersí credit rating and general family life whilst also increasing local government expenditure and other forms of public spending.

StepChange, the nationís leading free debt advice service, reviewed over 100,000 of its clientís financial dossiers with a view to ascertaining the amount of problem debt draining the UKís finances every year ñ that is, debt which cannot be squared by a struggling borrower.

As well as the aforementioned factors, StepChange identified housing costs as the heftiest price paid by the UKís economy. As individuals plunge deeper into debt, their homeownership comes under threat with re-possessions too common an occurrence. Re-possessions in turn lead to a number of administrative charges including eviction fees, moving costs and increased benefits in a number of cases. Cumulatively, these costs comprise a total of £2.8bn of the £8.3bn expended by the UK as a result of personal debtors.

The charity also note that personal debt negatively impacts on individualsí job performance, due to their heightened stress levels and absentmindedness. These sour feelings manifest themselves within a debtorís workplace, leading to reduced productivity and poor decision making ñ costly ends in themselves without the unemployment which comes as a natural consequence of poor job performance. This unemployment means increasing amounts of unemployment benefits, and the apathy displayed by many jobless people disillusioned by their high levels of debt is not conducive to them finding employment elsewhere, resulting in the perpetuation of these benefits. Overall, problem debtís relationship with employment is costing the UK roughly £2.3bn.

Pensioners pillaged by personal debt end up knocking the UK economy back around £658m due to health scares ensuing from increased angst coupled with their congenital frailties. In fact, debt negatively impacts on individualsí mental health regardless of age, with StepChange suggesting arrears double an individualsí chance of contracting mental health problems. The overarching consequence of both these factors is increased NHS expenditure which translates as an increased burden on the taxpayerís pocket to the tuneless sound of £1.618bn.

ìProblem debt costs all of us, including families, businesses and communities,î warns Mike OíConnor, chief executive of StepChange.

ìLifting the scourge of problem debt and helping prevent it in the first place makes economic sense. We need a concerted effort by public bodies, lenders and charities to help people in trouble now or in danger of getting into difficulty.î

StepChange conducted a survey on households in the North East of the UK, in which it discovered that 6% of the sample have difficulty sleeping due to monetary issues, with 27% of this group particularly troubled by debt problems. These findings come on the back of the charityís ëNeed for Sleepí campaign with which it hopes to bring the problem of increasing debt to the forefront of policymakersí minds.

Joanna Elson, chief executive of the Money Advice Trust, said: ìOn the frontline we are seeing a new generation of debt problems, with people increasingly struggling with household bills and finding smaller debts more difficult to escape.

ìFree advice provided at the earliest stage possible is the best way to limit the damage that unmanageable debt is causing, both to our lives and our economy.î

StepChange has encouraged ailing debtors to confront their demons and seek aid, impressing upon the public there is no shame in solving such a life-sapping problem. The highest hurdle to overcome is the mental barrier which traps debtors in a conceptual cage paralysed by their perceived inadequacies and unwilling to meaningfully address issues of any importance. The charity urges anyone in arrears to seek advice before they suffer irreversible ramifications such as family or job loss. Amongst its suggestions to tackle the issue of problem debt include a breathing space scheme, with only those who take action to confront their debt afforded eligibility, so this group are suitably incentivised and donít fret over added interest and administrative fees.

ëWe need to see a concerted effort, especially with interest rate rises around the corner, by public bodies, lenders and charities to help people who are in trouble now or are in danger of getting into difficulty:î Mike OíConnor continued.

ëProblem debt is a brake on peopleís capacity to work, or to return to work, a brake on aspiration and a brake on potential. The impact affects us all and we cannot afford to walk on by. Some people will always get into debt, but we need to prevent problem debt as much as we can and have practical solutions to help people when they do.í