Shropshire Star

Quarter of poor households struggling with problem debt, think tank warns

The Institute for Fiscal Studies says a third of poorest families have consumer loans which exceed their assets.

“A five pound and ten pound banknote, along with Natwest bank cards in a wallet, in north London. PRESS ASSOCIATION Photo. Picture date: Sunday January 29, 2017. Photo credit should read: Yui Mok/PA Wire)

Around a quarter of the poorest households are struggling to repay loans or are behind with their bills, a leading economic think tank has said.

The Institute for Fiscal Studies (IFS) said while most households in Britain with unsecured debts had more than enough assets to repay them, “problem debt” was an issue among the least well-off.

It estimated one in six households among the poorest 10% were in arrears on bills or repayments – more than double the rate for the population as the whole.

Another 10% of households in that group were said be spending more than a quarter of their income on servicing debts.

While those on lower incomes were less likely to hold such debts – more than one  in three among the poorest 10% had debts which exceeded their financial assets compared to just one-in-10 among the wealthiest 10%.

David Sturrock, a research economist at the IFS, said: “Most unsecured debt is held by high income households who look able to manage it, and more than half of those with debts have enough financial assets to pay them off.

“But debt looks like a real problem for a significant minority of those on low incomes, who are not keeping up with bills and/or spending high fractions of their disposable income on debt repayment.

“Headline numbers are no guide to the scale of ‘problem debt’- distinguishing between debts that are entirely appropriate and those that look unmanageable is crucial.”

For Labour, shadow chief secretary to the Treasury Peter Dowd said: “These deeply worrying findings show what the last seven years of austerity is doing to many working families.

“There needs to be more done to protect working households from extortionate rates of interest, and also ensure that their earnings are not being squeezed.

“Philip Hammond should be seeking to rebalance the economy away from an over-reliance on increasing household debt, and seriously tackle the cost of living crisis as wages fail to keep up with prices.”

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