Research from the StepChange debt charity has found that one in five (21 percent) of its clients in full-time employment (FTE) exceeds their monthly income even after receiving debt and budgeting advice.
In its report, titled ‘In work. But still in debt’, the charity warned that a growing number of people are finding that the income from their full-time job does not shield them from problem debt.
In 2021, 38 percent of people who contacted the charity for debt advice were in FTE, this had increased to 44 percent by December 2023.
A YouGov poll, conducted in January 2024 on behalf of StepChange, found around 2.8 million UK adults (9 percent) in FTE are in problem debt, accounting for 51 percent of the total number of people in problem debt overall (5.6 million).
The poll also found that a further 11 million UK adults (35 percent) in FTE are showing at least one sign of financial difficulty.
The cost of living crisis is cited as a major driver of in-work debt among StepChange clients and the wider population. The charity said that 26 percent of its clients in full time work say increases in living costs, such as housing and utilities, are the primary reason they are in debt.
As well as highlighting the high proportion of people in “negative budgets”, the report said that 9 percent of people working full time received Universal Credit payments, but still struggled to make ends meet.
Budget advice can help people move out of debt, and StepChange said that four in five of its clients in full-time work have a positive budget after advice. This means they can make ends meet once debt repayments are taken out of the picture. The charity was clear that earlier and more effective support from lenders can also help prevent debt problems and serious financial difficulties.
Richard Lane, chief client officer at StepChange, said: “It’s extremely concerning to see a growing proportion of our clients coming to us despite being in full time employment. The challenge to keep up with the cost of living is dragging more and more people into a situation where they are being forced to borrow to cope with everyday costs, to the extent that one in five StepChange clients in full time work is now unable to make ends meet.
“Urgent action is needed to improve the affordability of everyday costs like housing and energy, even for those in full-time work. Measures like an energy social tariff and boosting council tax support can make a real difference to struggling households. It’s also vital the government extends and makes permanent crisis support like the Household Support Fund, which has been a lifeline for working households on low incomes facing hardship.
“For those on higher incomes, full-time work tends to mean easier access to credit, but that doesn’t preclude them from the pressures of the cost of living crisis that can drive up unsustainable borrowing to cover everyday costs.
“Preventing harm from consumer credit debt must be a key focus of the new FCA consumer duty, which requires firms to seek good outcomes for customers and take reasonable steps to prevent foreseeable harm. This report should serve as a reminder to lenders that by spotting financial difficulty early and providing effective support and forbearance they can prevent and arrest debt spirals.”
