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UK household debt hits record high as families 'borrow to scrape by'

Kalila Sangster and Tom Belger
Woman with coins in hand with white leather purse
Household debt has risen to over £400bn, a new report has found. Photo: Getty

Average UK household debt hit a record high of £14,450 last year as more families borrowed “just to scrape by,” new research suggests.

Total debt excluding mortgages reached £407bn in the third quarter of 2019, up 31% on levels reached during the financial crisis in 2008, according to analysis by the Trades Union Congress (TUC).

Debt levels as a proportion of household income have also risen above their 2008 peak for the first time in the past year, reaching 27.5% of earnings, the TUC found.

The average household’s debt was £430 higher than one year earlier.

Frances O’Grady, TUC general secretary, said the increase was “not about keeping up with the Joneses,” with years of wage stagnation and a growth in insecure jobs blamed.

READ MORE: ‘Awful’ productivity of UK workers puts pay rises at risk

The TUC said 3.7 million people were currently in precarious work in the UK, including an estimated one million jobs on zero-hours contracts.

Meanwhile average real wages are still lower than before the financial crisis, according to the union body.

It said limits on the power of trade unions left people unable to push for higher pay, despite sustained employment growth which typically improves workers’ bargaining power.

The TUC further pointed the finger at government austerity over the past decade, with many welfare benefits slashed in recent years.

Britain's Trades Union Congress general secretary Frances O'Grady attends the Trades Union (TUC) Congress in Brighton, southern England on September 10, 2019. (Photo by Ben STANSALL / AFP)        (Photo credit should read BEN STANSALL/AFP via Getty Images)
TUC general secretary Frances O'Grady. Photo: Ben STANSALL / AFP

Average pay rises have picked up since 2017, which might have been expected to reduce debt levels, but historically low interest rates have also made borrowing more affordable.

Debt may also be rising more rapidly among some groups than others, but the figures do not provide a breakdown.

READ MORE: UK workers face 'longest pay squeeze in centuries'

“This is hard-up families borrowing just to scrape by. It’s for paying the rent, heating the home and feeding the kids,” said O’Grady.

“The reason we’re seeing this is bad management of the economy. Wages are still worth less than a decade ago. Too many people have insecure jobs with uncertain hours, and vital support like working tax credits has been cut.”

Sue Anderson, head of media at the StepChange debt charity, said it received more than 330,000 requests for help in the first half of last year alone.

She said borrowing to meet basic needs was becoming “ever more entrenched,” with more than 12 million adults though to be covering household essentials with credit last year.

The TUC research included bank loans, payday loans, credit cards, store cards and student loans, but did not include mortgage borrowing.

READ MORE: Brits splurge on credit cards as spending hits all-time high

It comes a day after official figures showed UK labour productivity edging up just 0.1% in year, continuing a trend of prolonged weakness since the financial crisis.

The Resolution Foundation think tank warned Britain’s “disastrous productivity performance” threatened to derail the recent recovery in wages, giving employers less leeway to raise pay.

Recent strong wage growth has already begun to tail off slightly since the second half of 2019, potentially raising the likelihood of continued high household borrowing.

Productivity levels are widely seen as a key sign of the strength of an economy, with higher output per hour worked typically freeing up cash for firms to increase wages, profits or investment.

The Office for National Statistics (ONS), which released the figures, has said economic uncertainty since the financial crisis may have deterred firms from long-term investments in technology that could boost productivity.

The Treasury has been contacted for comment.