The poorest 10% of households get into debt to finance their day-to-day living, analysis commissioned by Sky News has found.
The Bank of England has found 54% of all households reported outstanding debt in 2018.
But Sky News analysis, in partnership with the Resolution Foundation, has looked deep into that figure to reveal what debt looks like for families in the lowest income bracket.
Households experiencing poverty spend 34% of their gross income on debt repayments, compared to just 8% for average households. Of those, a third are already struggling to keep up with debt repayments.
This is not something which only impacts people on benefits. Working families are running out of money every month.
Households are borrowing simply to live because their incomes are too low to make ends meet. Their debt spirals into an endless cycle because borrowing costs are too high, leaving them with little way out.
Debt isn’t a deprivation issue. Affordable credit is.
Many homes can’t survive without credit of some kind. The difference is, if you have a decent income you can borrow relatively cheaply from a bank or credit card. But if you’re experiencing poverty you’re likely to be ignored by mainstream lenders.
Sky News has spent the last six weeks in Rock Ferry in Merseyside to see for ourselves what this looks like.
This is an area in the heart of Birkenhead, where at least one in three children live in poverty.
This time of year is when finances are most stretched.
Traditionally, loans came from the state or friends and family but those safety nets either don’t exist or are unavailable for some people and a new industry has grown to fill that hole.
Doorstep loans and loan sharks are two of the main sources of income for people living in deprivation and in need of credit.
The country’s largest provider of home credit is doorstep loan company Provident, with 440,000 customers in the UK.
The stretch before and after Christmas sees leaflets from Provident dropped through letterboxes in the poorest streets of Rock Ferry, offering cash loans at 535.3% interest.
Debt often impacts women more than men because they generally earn less and have more childcare pressure.
Single mum Mary (not her real name) took out a £300 Provident loan to get through last Christmas. After she’d repaid half she was offered another.
By this Christmas, she’d stopped making the £55-a-month repayments because she couldn’t afford it.
She told Sky News she has been sent letters saying people will turn up at her door asking for the repayments. She’s ignoring them, but believes they will catch up with her eventually.
If they offer her another loan when she’s in need, it will be hard to refuse.
“I’m dreading when I go on universal credit, I will be getting a loan,” she said.
Earlier this month, the chairwoman of the business select committee wrote to the Financial Conduct Authority calling for an investigation into Provident.
Rachel Reeves, Labour MP, accused the company of “cynical” marketing tactics to target financially vulnerable customers over Christmas.
Doorstep lenders like Provident are legal and charge high interest to finance lending to high-risk customers. They say their customers need access to credit to live their lives.
It’s quick cash many rely on and provides credit that wouldn’t otherwise exist for many people.
Illegal loan sharks are often the only alternative for people living in poverty. They are operating in most communities, targeting the country’s most vulnerable. Their intimidation tactics can be frightening.
The UK’s illegal money lending team have seen kidnap and rape used by loan sharks against people unable to repay their loans.
“They portray themselves as your best friend,” Tony Quigley, head of the England illegal money lending team, told Sky News.
“Our average APR is about 15,000% but we’ve seen it as high as 4.5m%.”
Some 310,000 people across the country are in debt to loan sharks with the benefit to criminals and value of loans reaching nearly £36m.
One woman who took out a £500 loan ended up repaying £88,000 to a loan shark, according to the Money Advice Service.
Sky News met working families in Rock Ferry who spend at least the last week of the month with no money. Mothers end up not eating so their children can.
Third sector organisations in this area of Birkenhead are working overtime to catch families falling into crisis.
They report that they’re helping more working families than ever before.
Problems they deal with every day include rent arrears, unpaid utilities and debts to the Department for Work and Pensions.
Because the Bank of England’s figures don’t include these types of loans and unpaid bills when analysing household debt, the reality for the country’s poorest families is likely to be even worse than their data has revealed.
This month the number of people in work in the UK reached a record high. Average earnings had increased by 3.3%. Job vacancies were up. These numbers paint the picture of a country doing really well.
But there’s massive disconnect. People at the lowest end of the scale aren’t feeling that success. They’re relying on food banks to eat and borrowing money they can’t repay to live.