Average household debt in the UK is
approximately £7,600, and rising. That's
excluding mortgages. Contrary to press reports,
it's not all about rampant consumer greed
20% of people use
loans and credit to survive until pay-day, according
to Credit Action.
24% of people go into debt to cover basic
living costs, according to a YouGov survey.
One in five households are in debt to
water companies, according to the National
Consumer Council (NCC).
One in seven households can't afford
their energy bills. (NCC)
One in twenty households have had their
phone cut off. (NCC)
Those struggling with debt typically
earn less than £9,500 a year, according
to a MORI survey.
The current rise in debt hasn't been
accompanied by a consumption boom, according
to the Bank of England Quarterly Bulletin.
Personal debt has grown twice as fast
as income since 1997. On average, personal debt
has increased by 50%, while incomes have risen
The rise in debt can be seen against a background
of appallingly low incomes. In real terms (ie
allowing for inflation) the bottom 10% of jobs
pay less now than in 1970. The minimum wage
would have to be around £6.50 per hour
to bring low-pay up to the 1970 level. Meanwhile,
people receiving Jobseekers Allowance must survive
on only £56.20 a week.
The widespread financial desperation indicated
above shouldn't obscure the fact that national
wealth is increasing GDP has doubled since
the early 1970s. You might ask where all the
wealth is going. Which leads us to the next
Banks and credit companies see household debt
as an "opportunity". Huge profits
can be made from ripping-off the financially
desperate. Here are some typical rip-off scenarios:
Late payment fees. If you pay
your credit card bill late, you'll automatically
be charged a fee of around £20. Credit
card companies make £400 million a year
from such charges, according to the Consumer
Association. The Office of Fair Trading
believes this breaches consumer law (which stipulates
that penalty charges must reflect only the bank
costs incurred). But it's difficult to prove,
as banks are secretive about how charges are
According to a front-page Times report
on credit card rip-offs (27/10/04), the banks'
willingness to waive card penalty fees as a
"goodwill gesture" and their failure
to prosecute people who refuse to pay the charges
are evidence that the fees are unjustifiable.
The Times quotes a legal expert: "Credit
card penalty charges are legally unenforceable
because they seek to punish the borrower rather
than compensate the bank for any losses that
they have suffered".
Other bank charges. Unauthorised
overdraft fees, returned cheque fees, unpaid
standing order fees, various "administration"
fees, etc. Which? magazine found that
one in four people exceeded their overdraft
limit in the past year it claims this is "a
real moneyspinner for the banks". The average
"mortgage arrangement fee" now stands
at around £500 nearly double what it
was five years ago.
Credit card cheques. Some credit
card companies mail these specifically to customers
experiencing financial difficulty. Can't pay
your water bill? Why not use our cheques? They
look like normal cheques seemingly harmless,
except for the high interest rate revealed in
the small print. A Consumer Association
survey found that the higher a customer's debt,
the more likely they are to be sent credit card
False advertising. According
to the Office of Fair Trading, one in
five credit card advertisements breaks the law.
The breaches mostly relate to misleading claims
about interest rates.
Sub-prime lending. One in five
people are denied access to mainstream credit
and have to borrow in the more expensive "sub-prime"
market, at rates that average 177%. This is
"loan shark" territory, but it's a
lucrative enough market (worth an estimated
£16 billion a year) to attract big corporations.
Payment protection insurance (PPI).
This is insurance which supposedly covers customers
unable to keep up credit card repayments, etc it's generally taken up by the most financially
vulnerable people. Banks use PPI as a 'cash
cow', with huge profit margins which are not
transparent to customers. For example, the Guardian
newspaper claimed that 10% of Barclays' worldwide
profits have come from selling PPI.
The Guardian also alleged that Barclays
sponsored a secretive public relations operation
called 'Protect' to rebut claims of excessive
profiteering on PPI. In an article entitled
'Barclays exposed over huge insurance rip-off',
the newspaper quotes the reaction of Norman
Lamb (MP and Treasury select committee member)
to its PPI findings: "It is gross profiteering,
absolutely excessive, and deserves to be exposed.
People need to be aware of this rip-off".
you can use to get your bank to refund you (their
dubious "fees" etc) >
Our article for
Sleaze magazine about debt as a social
control mechanism >
It takes an average earner 40 days just
to pay off the £2,400 interest on the
average level of credit card and loan debt.
February 10th (the 41st day of 2005) has thus
been dubbed 'Debt Freedom Day'.
15% of people say their debts are spiralling
out of control or keeping them awake at night,
according to a YouGov survey.
Citizens Advice Bureau advisors
have dealt with a 47% increase in personal debt
problems over the last five years.
A quarter of those in debt are receiving
treatment for stress, depression and anxiety
from their GP, according to the Citizens
1.4 million customers on electricity
or gas pre-payment meters have disconnected
themselves for fear of running up debt.
Bankruptcies increased by 30% last year,
and by nearly 30% the previous year, according
to the DTI.
The biggest cause of rows within a relationship
is not infidelity but money, according to Relate.
The amount of debt being chased by Britain's
bailiffs has soared by 70% over the past two
Sainsbury's Bank predicts that
30% of personal loans taken out this year will
be for "debt consolidation" (ie paying
off other outstanding debts).
creditaction.org.uk; YouGov/KPMG survey, quoted
by Press Association, 2 Sept 2003; National
Consumer Council report, Sept 2003; MORI survey,
quoted by Money Observer, 2 June 2005; Bank
of England Quarterly Bulletin, Autumn 2004;
creditaction.org.uk; Guardian, 14 Jun 2002;
IFA promotion; YouGov/KPMG survey, as above;
Fuel Poverty Task Force, June 2001; creditaction.org.uk;
Consumer Association estimate quoted by Daily
Mirror, 17 Oct 2003; The Times, 27 Oct 2004;
Which? magazine quoted by the Guardian, 23 Oct
2004; OFT report, March 2004; Datamonitor, UK
Non-standard and sub-prime lending 2004; Guardian
investigation on PPI, 6 March 2004)