Mayor of London Boris Johnson is being urged to use his high public profile to help the half a million Londoners with problem debt obtain the right advice to help them get out of trouble.
A report from the London Assembly’s economy committee says his backing for a money advice week could help reduce the stigma of problem debt.
The committee’s chair, Jenny Jones, says: ‘We were particularly concerned to hear of the impact on children in over-indebted households. And we heard that the consequences of Council Tax arrears are the most severe.’
She adds: ‘Importantly, the estimated social cost of London’s problem debt could be as much as £1.4 billion, putting more of a burden on systems such as education and the NHS.’
The report is particularly critical of some London boroughs for turning to bailiffs and court action sooner rather than encouraging people to seek free help from the Money Advice Service or the charity StepChange that might enable them to manage affordable repayments.
One of the report’s key findings is that consumer credit is no longer the main cause of people getting into debt in the capital.
The report states: ‘The landscape of problem debt has shifted in the last five years. In the past, consumer credit was repeatedly listed as the main source of problem debt. It does remain a sizeable problem in relation to problem debt, but data indicates that there is now a significant rise in the number of people defaulting on essential household bills. Indeed, this has become the most prevalent form of debt among those in receipt of welfare benefits and on low incomes.
‘Furthermore, within this increasing growth in household bill defaults, Council Tax arrears have specifically been identified as a rapidly growing source of debt both in London and nationally.16 Between 2006 and 2014, the proportion of StepChange’s clients with Council Tax arrears has more than doubled. In London, 14 per cent of Citizens Advice’s debt clients report Council Tax as the main source of debt while 10.7 per cent report credit cards as the main source of debt.’
Borough councils that take an aggressive approach to debt collection, the report says, are seeing their collection rates dropping.
It goes on: ‘Of those who sought help from their council, a third (32 per cent) found services “not helpful at all” indicating that council departments, in comparison to other creditors, were most uncompromising when struggling to make repayments. To compound this, four in 10 Londoners who were in Council Tax arrears (equating to 120,000 people across London) had been sent a court summons for non-payment.’
The report identifies parts of east and south London as the worst affected areas, with more than 20% of adults in Barking & Dagenham over-indebted. And the proportion of StepChange’s London clients living in rented accommodation has grown from 50% to 62% since 2009.
So what’s to be done? Advice, advice, advice is the mantra, reinforced by the report’s conclusion that, while robust statistics are hard to come by, many people are resorting to loan sharks.
The report states: ‘The national Illegal Money Lending Team estimates that in London approximately 40,000 households are using illegal lenders each year. On average, an individual utilising loan shark services will accumulate three-and-a-half loans per year, paying back double on each. Accordingly, in London it is estimated that roughly £88 million transfers through the pockets of loan sharks, equating to an average of approximately £2,500 per household engaging in this form of lending.’
Making people more aware of alternative forms of credit is one key recommendation. The report points to patchy membership of credit unions, financial co-operatives that promote responsible lending.
The report says: ‘London membership remains modest in comparison to some other large urban areas in the UK. Around 1% of the London population are credit union members, compared with 3% in Merseyside and over 5% in Glasgow. The UK as a whole also lags far behind other countries. For example, some 45% of US citizens are members of their local credit union, compared to just 2% of Britons.’
The recommendations of the report are worth reading to anyone dealing with debt issues on a daily basis. You can download it here. At SJ Collections, we can guide our business customers when they have to deal with the consequences of problem debt, in an increase in unpaid accounts.