Over-indebtedness in Britain

Authors: Professor Elaine Kempson
Funded by: Department of Trade and Industry
Published by: Department of Trade and Industry
Publication date: September 2002

The term over-indebtedness is used to describe debt which has become a major burden for the borrower. It can be caused by, and contributes to, social exclusion, financial exclusion and poverty.

In response to these concerns, Dr Kim Howells, then Minister for Consumer Affairs, set up a Task Force on Over-indebtedness, to explore the causes and effects of over-indebtedness and to look at ways of achieving more responsible lending and borrowing. At its first meeting, the Task Force noted the lack of up-to-date statistical information on both the distribution of consumer borrowing across households and the extent of financial difficulties being experienced. In its first report (Report by the Task Force on Tackling Over-indebtedness. Department of Trade and Industry, 25 July 2001),

This study was commissioned in response to a 2001 UK Government Taskforce on Over-indebtedness recommendation that a survey be commissioned to provide up-to-date statistical data, and explore the links between specific lending practices and financial difficulties. Altogether 1,647 householders were interviewed across Britain about their own credit use and that of their partner, if they had one. Those who were in financial difficulty or who had fallen behind with their credit commitments or household bills were asked a series of questions relating to the difficulties they had faced. A separate, but linked, survey was also undertaken with 189 young people, aged between 18-24.

The survey indicated that, since the late 1980s, the number of households with credit facilities had increased markedly, but the proportion currently repaying credit was about the same. In other words, there had been a large increase in the number of households with overdrafts and credit facilities they were not using. The amounts owed by credit users had, however, increased considerably, especially on credit cards, loans and hire purchase agreements. The report examined the extent and nature of financial difficulties among respondents, and discussed evidence of claims of both irresponsible lending and irresponsible borrowing.

Over-indebtedness in Britain: a report to the Department of Trade and Industry (PDF, 675kB)