Problem debt ‘costing economy £900m a year’

There are weaknesses in the strategy for dealing with problem debt
There are weaknesses in the strategy for dealing with problem debt

The Government has an insufficient understanding of the scale of people’s debt problems and their impact on the public purse, according to a spending watchdog.

The National Audit Office (NAO) estimates that the increased use of public health and housing services by people with problem debt costs taxpayers an additional £248 million a year, and around £900m a year to the economy as a whole.

There are weaknesses in the strategy for dealing with problem debt and gaps in government data mean it is not possible to calculate some other impacts, including on employment and benefits, the NAO said.

Amyas Morse, head of the NAO, said: “Problem debt has significant consequences both for individuals and the taxpayer. While Government has made progress in seeking to address this issue, its attempts so far have been insufficient.

“The Treasury needs a better understanding of the scale of people’s debt problems and how it is impacting their lives and the taxpayer so it can effectively resolve the problem.”

Problem debt, defined as the inability to pay debts or household bills, affects around 8.3 million people in the UK and can increase people’s likelihood of being in state-subsidised housing, a report from the NAO said.

Caused by many factors, including life events, access to affordable credit and debt collection practices, problem debt can also cause anxiety and depression.

Frank Field, chairman of the Work and Pensions Select Committee, has written to Work and Pensions Secretary Esther McVey about concerns over the level of private debt owed to government.

Mr Field said lower earning families are being locked “into a miserable cycle of debt and hunger, easy prey to loan sharks and forced to resort to food banks”.