Household debt and problem debt in British cities
Latest research finds that people in large cities and towns in Northern England and Wales have the most household debt and will be hit hardest in the economic downturn.
The economy now faces its most difficult period in living memory and one in five jobs in large cities and towns could be lost or furloughed. This puts people with higher levels of household debt in particularly precarious situations.
While consumer debt is not necessarily a cause for concern, the inability to pay it off – or problem debt – is. Our latest research finds that people in large cities and towns in Northern England and Wales are in the most debt and will be hit hardest in the economic downturn.
Where do people have the highest level of household debt relative to their incomes?
In Northern England and Wales’ cities people have the highest levels of debt relative to their incomes. On average, for every £5 people earn in Warrington, Swansea, Sunderland and Wigan, they owe around £1. Meanwhile in Oxford and Cambridge, people owe just 35p for every £5 they earn on average.
|Where are people in the most debt?|
|Rank||City||Largest percentage of total income owed||Rank||City||Smallest percentage of total income owed|
Where has the most problem debt?
Economically weaker cities hit hard by Coronavirus also have the most people struggling with problem debt, defined by the issuing of court judgements (CCJs).
While Ipswich, Liverpool and Hull top the chart, all but one of the places with the smallest proportions of people with problem debt are in Southern England where pay is higher and the economic impact of Coronavirus is weaker.
Even before Coronavirus hit, many cities outside the South East saw steep increases people suffering from problem debt. Newport saw the sharpest rise of all – an increase of 2359 adults per 100,000 since 2013.
Southend and Basildon saw the smallest increases in problem debt, while York is the only northern city that hasn’t seen a sharp increase. These high debt increases leave people particularly exposed to income shocks such as redundancy or furlough.
The roots of this problem debt crisis lie in the 2008 Financial Crash. However, a decade of squeezed pay, flat productivity, welfare cuts and a more aggressive approach to debt collection have made it worse.
What needs to change
- Collect better data to give as comprehensive picture as possible on local debt. HM Treasury should urgently review ways of increasing disclosure on the geography of consumer credit, working with the Office for National Statistics, UK Finance, the Bank of England, the Financial Conduct Authority, Ministry of Justice and the Registry Trust.
- Reconsider the national CCJ regime. Over 400,000 CCJs are brought to courts each year for debts below £500. The Ministry of Justice and HM Treasury should consider whether the current system is providing public value for money relative to alternative remedies.
- Customise programmes of debt support in ‘debt problem’ cities and large towns. Places with prevalent problem debt should work with Citizens Advice to boost their outreach strategies and coordinate them with any other activities going on there.
- Reduce the wait time for the first Universal Credit payment. Currently, claimants must wait five weeks to receive their first Universal Credit payment, which is likely to increase demand for short-term loans and increase the likelihood that claimants cannot pay existing debt.