Families’ growing mountain of debt: Average household now owes £16,200, analysis finds

Millions of families are grappling with a growing mountain of personal debt as unsecured borrowing hits record highs.

Startling research shows that the skyrocketing cost of living has forced many people to borrow just to pay for essentials such as food and energy.

The average household now has £16,200 in unsecured debt such as loans, overdrafts and credit card borrowings, up £1,000 from a year ago. Experts have warned that almost nine million adults are ‘financially fragile’.

And many fear things will only get worse – with a poll showing 60% expect next year to bring another blow to their finances.

The revelations come as the government faces pressure to act on its plans to raise taxes from April.

The total amount of unsecured debt – which does not include mortgages – across the UK has exceeded £400billion, according to analysis by PwC accountants.

While families are borrowing just to make ends meet, the average amount of unsecured debt has risen by more than £1,000 – or 7.2% – in the past year alone.

Separate research from the Resolution Foundation think tank warns that 2023 will be ‘the year of the groundhog’ for many as they continue to face high taxes, rising interest rates and inflation .

Critics have questioned why Chancellor Jeremy Hunt was raising taxes in April when households are already in huge financial straits. Former Tory leader Sir Iain Duncan Smith has urged the Chancellor to reconsider his tax increases in light of the research.

He said: “It’s an indication that we desperately need to cut taxes and kick-start the economy where people are better off.” The important thing about reviving the economy is that it will help enormously to counter the crisis in the cost of living.

“To solve this problem, we must revive the economy through tax cuts.”

This week the Daily Mail revealed how a review of the tax system by the Treasury was quietly dropped, raising fears among Tories that the government is unwilling to reduce what has ballooned into a record tax burden.

Torsten Bell, chief executive of the Resolution Foundation, said: ‘From a cost of living perspective, 2022 has been a truly awful year – far worse than any year of the pandemic or financial crisis.

“Next year should see the back of double-digit inflation, but it should be a groundhog year for many families whose incomes are expected to decline as much as in 2022.”

A typical middle-income household is expected to see their personal tax bill rise by around £1,000 from next April, according to the Resolution Foundation.

It follows a series of hikes announced by Mr Hunt in his autumn statement, which will leave Britons facing the highest tax burden since the Second World War. A poll today reveals that 60% fear next year will be even worse for their finances than 2022.

The GB News survey found just 4 per cent were ‘completely’ or ‘fairly’ confident in Rishi Sunak and Mr Hunt’s ability to improve their financial situation, with 70 per cent saying they were ‘not at all’ confident”.

The rise in “financial frailty,” defined as those who may need to use their overdraft just to cover essentials, comes after families saw their real incomes decline steadily throughout 2022. The record low debt of £16,200 has been described as “surprising” by Isabelle Jenkins, head of financial services at PwC UK.

Ms Jenkins said: “For most borrowers, credit serves an important function – smoothing out income and expenses which, if affordable, can be beneficial.

“However, unaffordable lending and borrowing can cause real harm to individuals and society, and vulnerable consumers can be disproportionately affected.”

Research by PwC and credit app TotallyMoney has also shown that 20.2 million adults are now at risk of being ‘left out’ of traditional banking services, for example because they have a poor credit history. credit.

This can push thousands of people into high-cost payday lenders or into the jaws of loan sharks.