Debt, poverty and living standards in Great Britain

In 2023, the rising cost of living presents the most significant challenge to living standards for many years. This comes after a period of social and economic uncertainty resulting from the pandemic, compounded by unresolved questions surrounding Brexit and significant political uncertainty. Very high inflation looks likely to continue well into 2024, and substantial increases in home energy bills since 2022 poses a huge problem to many households already struggling to keep afloat. With wages not keeping pace with inflation, there is a growing gap between what many people have and what they need for a decent standard of living, as described through the Minimum Income Standard (Davis et al, 2022; Padley and Stone, 2023). Millions of people in the UK risk falling well short of this standard as costs continue to rise and as our social security system fails to provide adequate and appropriate support.

At the same time, there are frequent reports of increases in the number of households in debt and in the size of household debt. Research by the Financial Conduct Authority 1 found that the number of adults missing payments on any domestic bills or any of their other credit commitments in 3 or more of the previous 6 months had risen from 4.2 million (8%) in May 2022 to 5.6 million (11%) in January 2023, while over three-quarters (77%) of UK adults in the 6 months to January 2023 felt that the burden of keeping up with their domestic bills and credit commitments had increased. The Bank of England reported that ‘net borrowing of consumer credit by individuals rose to £1.7 billion in June [2023], the highest since April 2018’ 2. Research by StepChange points to the growing use of credit as a safety-net in the absence of other options to keep up with household bills, and they estimate that 4.4 million people who were struggling to pay bills and credit commitments borrowed £13 billion to cover these and make it to the next payday3. This can have a detrimental impact on people’s health and well-being, and can dramatically increase the likelihood of material hardship.

In this context, there is a need to develop a fuller understanding of the relationship between debt, poverty and minimum living standards. The analysis reported here aims to achieve this using data from the Wealth and Assets Survey containing extensive information on both income and debt. We examine patterns in the persistence and depth of inadequate living standards for those in debt, identifying whether some groups are particularly vulnerable to experiencing detrimental financial outcomes, and exploring whether there are associations with different types of debt. In investigating these patterns and associations, the analysis aims to identify key areas for policy to address and to inform ‘solutions’ that could help people to live debt-free and with dignity.

The report begins with a review of existing literature and evidence on the relationship between debt, poverty and living standards. After briefly describing the data and methods used in the remainder of the report, we examine how different types of debt might have differential effects on the risk of falling into economic difficulties, and how this relates to the likelihood that individuals will seek debt advice. We then provide evidence on how subjective perceptions of the financial burden of debt interact with other key household characteristics such as household composition and economic activity, and how this in turn affects the risk of experiencing financial hardship. We explore how debt contributes to the persistence and depth of inadequate living standards, and how life course transitions interact with these relationships. We conclude by reflecting upon the multidimensional nature of associations between debt, poverty and living standards, and how this might change in the current context of high inflation and rapid increases in the cost of living for low income households.