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Millions are on ‘financial knife edge’ due to cost-of-living crisis

Nick Cheek
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Nick Cheek

Almost eight million people are on the brink of serious financial hardship and have been overlooked during the cost-of-living crisis, new research from a consumer campaigner has discovered.

A survey carried out by Which? questioned 4,000 people across the UK to determine how different consumer groups were faring in the current climate of high living costs.

The research discovered that, while all of those surveyed have been affected by the higher cost of living, it is not a pain that is evenly felt.

Overall 15% of the population were found to be more likely to have turned to credit and buy now pay later (BNPL) schemes as inflation and interest rates have risen.

Also, there are certain groups of people who are more at risk of mental as well as financial harm in the months and years ahead.

Six groups recognised

The study identified six groups of consumers who are experiencing the cost-of-living crisis in varying ways.

These groups are: ‘Drained and Desperate’, ‘Anxious and At Risk’, ‘Cut Off By Cut Backs’, ‘Fretting About the Future’, ‘Looking out for Loved Ones’ and ‘Affluent and Apathetic’.

Much of the Government’s focus has been targeted towards the ‘Drained and Desperate’ group.

It is likely they have incomes of less than £20,000 per year and have made huge financial sacrifices, such as skipping meals or electing not to put the heating on.

However, the ‘Anxious and At Risk’ group has been largely ignored, outside of any universal support such as the £400 through the Government’s Energy Bill Support Scheme. A total of 7.9 million adults, or 15% of the population, are in this category.

Usually they are in larger households that have children living at home, and are using credit to make ends meet. They are also far more likely to have borrowed money to maintain basic living standards, compared to the ‘Drained and Desperate’ group.

Just under six out of ten in this category have increased debts over the past six months, the highest amount out of all of the groups.

They are also more than twice as likely as the UK population to have used BNPL schemes.

Previous Which? research has highlighted  that many BNPL users do not realise they are taking on debt, or even think about the potential of missing future payments.

It argued that stronger safeguards need to be implemented to protect people using BNPL.

Worryingly a fifth of the ‘Anxious and At Risk’ category have a mortgage which are on a variable tracker – meaning their rates are hiked every time the Bank of England base rate rises.

The Bank of England has raised interest rates thirteen consecutive times to a 15-year high of 5%, which has punished those on tracker mortgages, and its Monetary Policy Committee meets next on 3 August.

In response to the cost of living issues, Which? is calling on essential businesses such as energy firms, broadband providers and supermarkets to do more to shield customers from current financial headwinds.

Supermarkets, for example, need to make healthy budget-range items more available. Telecoms firms should cancel future mid-contract price hikes, and energy firms need to ensure their customer service departments are fully staffed to support those who are most in need.

Financial “balancing” for millions

Rocio Concha, Which? Director of Policy and Advocacy, said: “Our research reveals that almost eight million people have been left balancing on a financial knife-edge. Until now, the Government and policymakers have rightly focused on supporting the millions who are already failing to make ends meet, but this ‘Anxious and At Risk’ group is a ticking time bomb.

“They are far more likely to have relied on borrowing to make ends meet but with interest rates continuing to rise, it’s only a matter of time before they find themselves facing serious hardship. The Government must help those most in need by tightening regulation on BNPL  to stop unaffordable lending and ensuring essential businesses are doing everything in their power to ease pressures on household finances.”