On Monday, the Bank of England announced that consumer debt may soon cost British banks £30 billion if unemployment, underemployment and inflation continue to rise at the current rate. Last week, the Money Advice Service released figures including the frightening statistic that 8.3 million people in the UK are now in debt. Meanwhile, the Financial Conduct Authority recently revealed that it is launching an investigation into £200 billion of unsecured consumer credit.
Austerity-driven UK has, somewhat unsurprisingly, found itself in the middle of a debt crisis.
The focus of blame seems to lie in the sharp rise in zero-hours contracts and part-time work. Una Farrell, the communications manager for the work and welfare charity Turn2Us, told Occupy.com: "Zero-hours contracts add to a person's financial insecurity as they can't plan for the future.
"While part-time working can be good if that is what the person wants, it is not if they would actually like a full-time job," she added. Not only that, incomes are failing to rise, and "stagnating wages are putting huge pressure on many of the most vulnerable households, with too many buckling under this pressure."
In the current economic climate, Turn2Us has been steadily gaining clients. "We are seeing a rise in people seeking our help and people are becoming more desperate. We expect the situation to continue to get worse," said Farrell. "It is important that the government raises awareness of the help available so that people receive the welfare benefits that they are entitled to."
Those views were echoed by Sorana Vieru at the debt charity StepChange, who agreed that unstable conditions and reduced working hours have contributed heavily to the UK's personal debt crisis.
"Estimates show 2.9 million people are in severe problem debt and 8.8 million people are in moderate financial difficulty. Income shocks are tipping millions of people into problem debt because millions of families don't have safety nets they can rely on," Vieru said.
StepChange's recent job market research painted a bleak picture, revealing that 14 million people faced a shock to their income or a change of circumstance in the last year. "We found that 1,260,000 people work part time because they can't get a full-time job, 565,000 work a temporary job because they can't get a permanent job, and 790,000 people work a zero-hours contract as their main job," Vieru added.
Mike O'Connor, StepChange's chief executive, said the UK government has a duty to help these people more than it is already doing. When people get into debt, they need to see promises turned into action.
"People need better support to manage their debt problems. The government has committed to the creation of a 'breathing space' scheme to provide better protections for those people struggling with debt problems," O'Connor said. "This is a policy with cross-party support that can make a significant difference to the lives of people struggling with debt, and we urge the government to act now."
Professor Alec Chrystal, who works in the finance department at Cass Business School in London, is also concerned about the wage crisis and its connection to rising consumer debt. But he suggests the solution involves more than simply expecting the government to help.
"This is part of a squeeze on real income. Prices are running ahead of real wages even for people in work. The public sector pay cap will have contributed to this," Chrystal told Occupy.com. At the end of the day, he believes government figures are too reductive and don't give an accurate representation of the level of poverty in the UK.
"Unemployment may have fallen but there is a still a lot of underemployment and low pay -- both in the public sector and in the private service sector. It is not clear what the government can do but it is clear that further regulation of banks and loan companies is not the main part of this story, though it may be part of it," he added. "The broader story [is that] ordinary folk are being left behind while the elite raise their incomes and wealth rapidly. It is not just a UK story, I think, but also apparent in the US as well."
In a recent statement, the Financial Policy Committee described the current level of consumer lending in the UK as a "pocket of risk" on both sides. It went on to say that "lenders overall are placing too much weight on the recent performance of consumer lending in benign conditions as an indicator of underlying credit quality. As a result, they have been underestimating the losses they could incur in a downturn."
If the UK's debt crisis escalates further -- as it almost certainly will in the rapidly souring economic climate -- it may become provoke an untenable situation for both consumers and lenders. The FCP plans to publish a full report on its findings about "financial stress" in the UK on Nov. 28. In the meantime, expect further stress on the horizon.