Council tax debt problems overtake credit card debt

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Citizens Advice reveals changing face of debt as consumer credit issues shift into arrears on essential household bills

Council tax debt is now the most common debt problem reported to Citizens Advice overtaking credit cards, new figures reveal today.

The charity expects to help with 191,400 of council tax debt issues in 2014/15 – a 20 per cent increase on 2013/14.

Today’s findings are from Citizens Advice’s major new report Consumer Challenges 2015, due out tomorrow, which reveals for the first time a full picture of how consumer markets are developing in the post-recession period.

The report highlights how since 2012/13 a growing proportion of people have been coming to Citizens Advice seeking help with rent, council tax, water and fuel debts.  Yet during the same period the proportion of debt issues around credit cards, mortgages and unsecured personal loans has declined.

The increasing demand on housing and rise in rents means help with rental debts could reach 122,800 by the end of March 2015, 5% up on the previous financial year.

Debt problems with credit cards are expected to fall by 12 per cent to 155,700 in 2014/15 is 155,700.

The figures reveal the changing face of household debt, as the mainstream credit problems of the post-2008 period turn into problems with priority debts.

So far this year petrol and energy costs have gone down but in some cases the reductions are marginal compared to how prices have soared.  Energy bills are now 210% higher than ten years ago.

Citizens Advice Chief Executive Gillian Guy said:

“Households’ financial recovery will not happen overnight. The improving economy, rise in employment and price reductions for some day to day costs is good news for many people but it is important to remember that this is set against a back drop of six years of financial difficulties.

“There is a concerning shift in the kind of debt problems people are getting into. The mainstream debt problems of the credit crunch, from credit cards to loans, are morphing into even more troubling problems.  We’re helping people who are struggling to afford a warm home, keep a roof over their heads or put food on the table.”

The report reveals how debt problems reported to Citizens Advice reached a peak in of 600,000 in 2010/11 which correlates with a spike in unemployment, a fall in real wages and the previous relaxed lending practices that lead up to the financial crash.

The Office for Budget Responsibility expects household debt to reach historic highs of £2.43 trillion by 2019 – an increase of £174 billion on its forecast in March.  It points to the rise in house prices for pushing up personal debt, but the Citizens Advice report shows how problems with mortgage debt reported to the charity are actually down due to the sustained period of historically low interest rates.

Between April and December 2014, 31 per cent of self-employed people who got help from Citizens Advice did so about a debt issue compared to 29 per cent of all Citizens Advice clients and 25 per cent of those who work thirty hours a week or more.

The new report highlights that, of those who sought help from Citizens Advice for serious debt problems in June to September 2013:

  • At £20,000, self-employed people’s debts are 41% percent higher than other households.
  • People who are unemployed have debts of £17,500, the second highest behind self-employed.
  • Retirees had the third largest amount of debt with an average total debt of £17,200.
  • £14,300 is the average total debts of people who work more than 30 hours a week.
  • £10,300 is the average total debts of those who work less than 20 hours.
  • Thirteen per cent of our serious debt clients had ten debts or more.

Citizens Advice is carrying out a separate study about the challenges that self-employed people face and what can be done to improve their financial stability.

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