Debt levels less serious than they appear

12 August 2004

Despite increasing levels of consumer borrowing, British households are in good financial health, according to debt charity the Consumer Credit Counselling Service (CCCS).

CCCS has announced in its quarterly debt report that the levels of unsecured debt as a proportion of income have changed little in the last five years.

Over that time unsecured borrowing as a proportion of take-home pay has only increased slightly. In April 1999, British households were on average borrowing 23.3p for every £1 of disposable income.

By April 2004, this amount had increased by only 4.3p to 27.6p for every £1 of disposable income, despite a 13 per cent overall increase in the cost of everyday items.

CCCS chairman Malcolm Hurlston said: “We have always maintained that it is not what you owe which is important, but what you owe relative to your income. ”

According to CCCS, the relationship between unsecured debt and disposable income provides a better indicator of overall financial health than the total borrowing figures, which were recently made public by the Bank of England.

Mr Hurlston added: “Our aim is to give more meaning to the £1 trillion borrowing figure quoted last month by the Bank of England by determining if people are borrowing more through e.g. loans and credit cards relative to their income and therefore more likely to become over-indebted.”

He concluded: “Our analysis suggests that the overall health of households is not deteriorating.”