Britain’s Debt Tsunami

Joe Cox

New polling shows that 3 million people expect cost of living increases to push them into debt, joining 8.5 million people already struggling to repay – to avoid another disaster, it's time for a debt writedown.

Yesterday was ‘bleak Friday’, when a series of cost-of-living increases hit millions of households already struggling with a toxic cocktail of falling real wages, insecure work and pitiful social security. Rising bills will worsen the UK’s household debt crisis as millions more of us won’t be able to stretch out our incomes to the end of the month. 

This latest crisis may not play out like the great financial crisis of 2008, a global financial shock with TV news showing bankers leaving their offices clutching boxes. It is largely hidden, unfolding in kitchens and front rooms. It is millions of people hiding bills and having sleepless nights. It is the slow shrinking of horizons, all your waking hours and emotional energy focused on how to make ends meet.

Many people on low and insecure incomes are forced to use high cost, short term credit in the form of payday loans, unauthorised overdrafts, credit cards and even loan sharks. Debt is a survival tool, but when it reaches unmanageable levels, it is difficult to escape. 

There is exploitation at every stage of the commercial lending and collection process, from aggressive marketing and mis-selling, exorbitant fees, and interest rates to traumatic bailiff visits. Even people who get access to some sort of writedown of their debt often have to pay a fee for the privilege whilst battling feelings of shame and experiencing stigma. 

The Money and Mental Health Institute found that 50% of people in debt have a mental health problem. Every year over 400,000 people in problem debt in England consider taking their own life. People often describe the experience of debt as feeling like drowning.

The lenders, speculators, and collectors feel no such shame and stigma. There is money to be made—from the original lending, from the collection process, and from the secondary debt market where debts that are difficult to collect can be sold on for pennies on the pound. The secondary debt market is opaque, but we know that debt collectors bought up a whopping £55 billion of debt in 2019 alone. If collectors can find a way to recover the full value of the debt, they can make profits far in excess of what they paid for it. It is an odious practice where financial capital profits from the hardship of ordinary people.

Successive governments have watched credit expand despite the social consequences of over-indebtedness and the added pressure it puts on health care and public services. This is because growing household borrowing boosts consumption in the short term and generates profits for lenders. Loose credit dampens class antagonism and lending redistributes money from people who need to borrow to capitalists that have money to lend. Creditors and their lobbyists also have good political access—there is a revolving door of regulators, politicians, lenders, and collectors. 

The scale of insecurity and over-indebtedness in the UK is vast and growing. At least 8.5 million people are over-indebted, meaning that they find their debt repayments a heavy burden. The latest polling commissioned by the Jubilee Debt Campaign found that 3 million more people fear they will be plunged into debt over the next six months. Half of the UK adult population is now either in debt or concerned about falling into debt. 

The UK government is responsible for the household debt crisis and their recent inaction has compounded it. They have cut Universal Credit below liveable levels, they have allowed unregulated Buy Now Pay Later purchasing to proliferate and have shrugged their shoulders as bills and rents climb faster than incomes. 

Creditors seek to extract every penny from their borrowers, but we at the Jubilee Debt Campaign are bringing together people in debt to resist, demanding dignity and freedom from poverty. People are expected to repay their debts in full, mostly through debt management plans that can trap them in poverty for up to 20 years. This is clearly unjust when these very same debts are being sold on and revalued every day. 

We need a ‘fair debt writedown’ for people with heavy debts because everyone deserves a fresh start and an opportunity to rebuild their lives. A rolling ‘debt restructuring fund’ should be created by the Treasury and used to buy out those debts which have already been devalued and sold to debt collection companies at knock down rates. We estimate that as much as 70 percent of the face value of these debts could be written off through this mechanism, which wouldn’t cost anything in the long run, and would significantly reduce the amounts that people in debt would need to repay. 

With millions being pushed into financial disaster, this exploitative situation in which people are pushed into cruel debt-traps cannot be allowed to continue. Any steps to tackle the worsening cost-of-living crisis must include a crackdown on predatory lending practices and write-offs of unjust debt.