Save, make, understand money

Household Bills

Families on low income face a ‘debt time-bomb’

Nick Cheek
Written By:
Nick Cheek

The cost-of-living crisis could be entering a dangerous new phase as unsecured debt and interest payments skyrocket leading to more strain on low-income families, according to research from a social change organisation.

With the Bank of England increasing the base rate for a 14th consecutive time on 2 August and inflation, particularly food inflation, remaining stubbornly high, research by the Joseph Rowntree Foundation (JRF) has found that more and more households are relying unsecured debt to cover essentials and families deemed to be on a low income are most likely to be suffering.

This is due to the number of households that have turned to loans so they can cover energy bills and food costs during the cost-of-living crisis. Even without a mortgage to repay, JRF found the rise in base rate will leave families in danger of facing a ‘debt time bomb’.

Of the 4004 adults who are in the UK’s lowest 40% of household income, almost half (44%) stated they are in arrears with three or more bills. The research also revealed that as of May 2023, 5.7 million families had unsecured debt, which averaged to around £2,500 per family.

JRF estimates that the annual cost of paying interest on this debt will be on average £680 per household, which equates to £3.9 billion in total across the UK.

Eight in ten households faced food insecurity

As part of the concerning picture painted by the study, a fifth of low-income families have taken on new lending to cover energy bills or their rent.

Of the households who reported using borrowing to pay for bills during the cost-of-living crisis, over half (53%) are going without three or more essentials. Those sorts of everyday items can range from laundry detergent to shower gel.

Alarmingly, 82% of these families faced food insecurity during the period of April and May 2023. Food insecurity is defined by the Red Cross as ‘when a person is without reliable access to enough affordable, nutritious, healthy food’.

Following the results, Alfie Stirling, JRF chief economist, said: “We are at risk of sleepwalking into a second wave of avoidable crisis, leaving more families unable to pay their bills for longer.

“As the pace of price increase on essentials begins to slow down, family finances are now in peril due to the rising cost of money itself.

‘A new course to end continuing insecurity is required’

Stirling added: “For many, what small respite might be gained from energy and fuel prices stabilising will be lost through rising costs for credit cards, overdrafts and mortgages. The 2020s so far has been defined by a continued lurch from one economic crisis to the next.

“Each demonstrates the UK’s deeper underlying fragilities and the failure across consecutive governments to build up and spread different forms of economic security, including income safety nets, public services, housing and energy generation and efficiency. The next few months could mark a turning point in how the decade is remembered, but it requires a new course to end continuing insecurity.”