Resolution Foundation publishes briefing note on household debt in the cost of living crisis

The Resolution Foundation published a briefing note, In too deep? The impact of the cost of living crisis on household debt, on 29 February 2024, examining how households used consumer credit through the pandemic and the cost of living crisis¹. It finds consumer debt at a record low relative to income, alongside record arrears on priority bills¹.

The ratio of consumer debt to household income has fallen throughout the pandemic and cost of living crisis, leaving British families with the lowest level of consumer debt relative to their incomes since records began in 1999¹. The briefing note states that had the UK's debt-to-income ratio remained at its pre-pandemic level, the stock of consumer debt today would be £48 billion higher, or around £1,700 per household¹. Survey evidence suggests the share of households using consumer debt has not changed in recent years; instead, average outstanding debts among those using consumer credit have fallen, particularly for poorer households¹. Lower debt levels mean that, even after recent interest rate rises, households overall are spending a smaller share of income servicing consumer debt than before the pandemic, a saving of £1.8 billion on the UK's annual consumer debt interest bill versus pre-pandemic levels¹.

Part of the reason consumer debt has not risen is tighter access to credit. According to the Bank of England's Credit Conditions Survey, lenders have tightened their risk appetite for unsecured lending every quarter since mid-2022¹. The briefing note says tighter credit conditions are more likely to bite for poorer households, with around one in eight (13 per cent) of the poorest fifth of families having been rejected for credit in the previous 12 months¹.

Faced with restricted access to consumer debt, the note says many families have fallen behind on priority bills such as gas and electricity to make ends meet¹. Ofgem data indicates the number of accounts behind on gas and electricity bills has reached the highest level since records began in 2012, and the latest data shows the average amount owed by those in arrears increased by 51 per cent in a little over a year, between Q2 2022 and Q3 2023¹. The note also reports a strong association between priority debt and negative health outcomes: someone is around twice as likely to report feeling "under strain" if they owe money on priority bills, compared with someone who does not¹.

Why it matters for households

The two findings pull in different directions for household finances. Overall, families are carrying less consumer debt relative to income than at any point since 1999, and are spending a smaller share of income on consumer debt repayments than before the pandemic, worth £1.8 billion a year across the UK¹. But the fall is not simply a matter of households paying debt down: lenders have tightened unsecured lending every quarter since mid-2022, and 13 per cent of the poorest fifth of families had been rejected for credit in the previous 12 months¹. Where credit has been unavailable, arrears have built up on gas and electricity bills instead, with the number of accounts in arrears at its highest since records began in 2012 and average amounts owed up 51 per cent between Q2 2022 and Q3 2023¹. The distinction matters because priority and non-priority debts carry different consequences for households, and the note links priority bill debt to a doubled likelihood of reporting feeling "under strain"¹. The briefing note does not set out policy recommendations or measures for households in the text published¹.

What happens next

The briefing note sets out no dated next steps, and no further publication or policy response is reported¹.