Today the CSJ is warning that the UK could expect to face a surge of so-called hidden debt, as the festive season and the cost of living crisis will force vulnerable people to borrow unsustainably from friends and family, or even illegal loan sharks.
Christmas is meant to be a time of celebration when families come together to enjoy each other’s company and the common bonds they share. It is, therefore, one of the best times of the year. But rather than wishing it could be Christmas every day, polling by the Centre for Social Justice shows that 8 million Brits want to put the holiday on notice and cancel it altogether.
Why? Because behind the Christmas cheer, many families are deeply anxious about falling into unmanageable debt this year. More than a fifth of the 4,000 adults we polled told us that they plan on cutting back on the amount they spend on presents this year for fear of over-indebtedness, rising to a quarter of all respondents on low incomes.
But what is truly worrying is the extent to which Christmas spending remains fuelled by debt. A third say that they are going to borrow money to pay for the costs of the season, rising to 41 per cent of 18-34 year olds. Chief among the sources of finance are credit cards and (as yet unregulated) buy-now-pay-later schemes, with almost 2 in 10 of us saying we’re going to use these options.
Used with care, credit is an important tool enabling people to better manage their income and expenditure. Yet treated without sufficient caution, debt can quickly become unmanageable and a huge drain on people’s finances, wellbeing, and mental health.
The pressures of the Christmas period call for extra vigilance. For we know that the pandemic has already placed huge pressures on people’s budgets, and inflation is reducing spending power. More than 70 per cent of low-income households say they couldn’t afford a £50 increase in the monthly cost of living and, without savings, are highly vulnerable to income shocks.
Given this context, ensuring people can access appropriate credit options is vital. What happens when they cannot? The need for money does not simply evaporate when it cannot be found through secure or regulated means. It is often merely displaced. According to the recent Financial Lives Survey, 15% of people who were denied credit or put off applying turned to an informal lender instead.
That is why the Centre for Social Justice believes that the UK must make additional preparations for a surge of hidden debt this Christmas, as vulnerable people turn to illegal loan sharks as the cost of living rises and credit options are reduced. We must ensure the Illegal Money Lending Team is properly resourced to guard against new and emerging forms of illegal lending as seen in other advanced economies, as well as traditional forms of exploitation, whereby sharks become false friends to vulnerable people with the sole intention of coercing victims into a subdued revenue stream.
In this light, we can see how important affordable, low-cost credit options are. They provide a buffer that enables people who need credit with a means to access it in a crisis and prevent them from falling into unmanageable hidden debt.
Yet there remains work to do to ensure more people can access the sustainable credit they need. Credit unions, for instance, should be encouraged to reach more people and expand their growing movement to support vulnerable consumers maintain a course of financial stability when the going gets tough. This will undoubtedly involve unleashing their potential to offer a wider range of products in a proportionate regulatory environment.
Ensuring people have affordable credit options and the right support to plan for the Christmas period means fewer people ending up in dangerous forms of hidden debt. The consequences of debt, after all, are not just for Christmas.