On borrowed time: credit reaches crisis

On borrowed time: credit reaches crisis

More than a fifth of people living in London and the north east are on the brink of financial disaster, according to debt consultancy Thomas Charles.

Its research, revealed exclusively to The Observer, shows that 22 per cent of Londoners and northeasterners think they are 'likely' or 'certain' to declare themselves bankrupt or take out an individual voluntary arrangement (IVA).

The research, conducted in January by YouGov and based on a sample of 2,315 people, also shows that people in both areas have large amounts of unsecured debt, with 19 per cent of Londoners and 21 per cent of northeasterners owing more than £10,000 on credit cards, personal loans, student loans, overdrafts and other debts, excluding mortgages.

But according to Citizens Advice it is child maintenance arrears and high energy, water and council tax bills, rather than credit card spending and personal loans, that are putting most financial strain on those visiting its bureaux. New statistics from the organisation show that in the year to January the number of people asking for help after struggling with gas and electricity payments shot up by 34 per cent, compared with a rise of just 3 per cent in those asking for advice on managing unsecured loan debts. Inquiries about council tax arrears were up 21 per cent in this period and those about water bills rose by 20 per cent.

Peter Tutton, social policy officer for Citizens Advice, says the results show people on low.....continued below

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incomes are struggling to keep pace with increasing everyday costs that cannot be avoided, rather than 'voluntary' debt from spending on credit cards: 'Inflation and increased action in these areas is disproportionate to any increase in their disposable income. The Child Support Agency has had a drive on arrears, so that could account for the large increase [42 per cent] we see there. The fuel debt increase is not only caused by the steep increase in fuel prices, but the fact that some energy companies have left it too long to alter the amount those on meters are charged. As a result, they have ended up with a steep increase in bills.'

The average domestic energy bill has risen from £775 in January 2006 to just over £1,000 last month, according to Joe Malinowski of price comparison website Theenergyshop.com. In January 2004 the average bill was less than £600. 'There are a lot of people who have been very badly hit by these rises, but the good news is that we are at the start of a price war and there is at least one more cut, to follow those announced this month, on the way in the next year,' he says .

Meanwhile, the Alliance & Leicester believes that average levels of borrowing should be easily affordable for the vast majority of households. Its research also shows that those in the north east and London are the most indebted. The average northeasterner's credit card debts, student loans, personal loans and overdrafts total £6,614, equal to 26.9 per cent of his or her income.