Out of the Red: Tackling Debt to Turn the Tide on Living Standards
Out of the Red: Tackling Debt to Turn the Tide on Living Standards
Over the past six years, households have faced a prolonged squeeze on living standards driven by the pandemic, global economic disruption and persistent cost pressures in essential markets. Since the start of the crisis, much of the government’s policy focus has been on increasing household incomes and decreasing the prices of essential bills. But far less attention has been paid to the household debt faced by the millions of households struggling to meet essential costs.
The view from our frontline advisers is stark. We’re helping more people - with higher debts - than ever before, and most people coming to us have no means to repay their debts. On average more than 48,000 people per month have sought help with debt from Citizens Advice so far this year. Recently, the average debt level that people come to Citizens Advice with for help went above £10,000 for the first time. More of our debt clients than ever (51%) are in a negative budget, where their income is not enough to cover essential costs.
Arrears on household bills including energy, water and council tax have become increasingly prominent amongst the debts people bring to us. This reflects an important change in the nature of household debt in the UK. Increasingly, households are falling into debt not because of short term income shocks or excessive borrowing, but because they cannot afford essential bills.
Once a household falls behind, debt stops being just a symptom of poor living standards. It becomes an active barrier to improving them. This results in a vicious cycle where the two issues reinforce one another. This report sets out the three key ways that heavy household debt is undermining the government’s agenda to raise living standards:
Unaffordable debt repayments and disproportionate collection practices push households further into hardship.
Debt absorbs increases in income, meaning higher wages or additional financial support do not translate into improved living standards.
Debt undermines people's access to good health, employment and housing, limiting their ability to improve their circumstances over the longer term.
Breaking this vicious cycle is essential if efforts to improve living standards are to reach the 8.7 million UK households currently in debt (1). Raising incomes and reducing essential costs must remain central, but these measures will have less impact if households cannot escape debts they cannot realistically repay.
The government must make tackling household debt a fundamental part of its living standards agenda.
In Out of the Red, we outline a package of solutions to break the vicious cycle of problem debt and weakened living standards:
1. Stronger protection from unaffordable repayments
The government should work with regulators, creditors and enforcement bodies to ensure repayment demands and collection practices are truly fair and reflect what households can realistically afford.
2. Give people a realistic route out of debt
Where debts cannot realistically be repaid without prolonged hardship, households need accessible routes to resolution.
3. Integrate advice to tackle the wider impacts of debt
Finally, the government should give serious consideration to approaches that integrate debt advice with health, employment, housing and community services.
1. This figure is drawn from the % of UK households in debt according to our internal Cost of Living Tracker data which is 30% and then applied to the Office for National Statistics number of households found here: