//Better local data needed to help tackle household debt

Better local data needed to help tackle household debt

icon-144Britain’s household debt problem has a local dimension.  Communities with high concentrations of lower income, younger households and with high densities of rented housing are more likely to experience problem debt. This concentration of household debt reduces household consumption and so constrains local economic growth.  Over-indebtedness is also associated with poor health and negatively impacts on children living in debtor households.

It is critical that local authorities, housing associations, health, children’s services and the community and voluntary sector have an effective oversight of debt within their local communities in order to identify ‘debt hotspots’; plan effective responses together, and improve their engagement with financial services providers to meet local needs.

A new CfRC report, written for the Community Investment Coalition (CIC), has been published today (20th October) which illustrates how local data can help identify ‘debt hotspots’.   The report, ‘The Distribution of Consumer Credit Debt in Leicester’ analyses postcode level data on bank lending patterns alongside local area data concerning community demographics to identify local debt hot spots in Leicester.   The approach can be replicated across the UK but the report also highlights:

  • The need for the main retail banks to release better lending data to create a comprehensive picture of household indebtedness at a local level;
  • The Financial Conduct Authority to conduct an analysis into how well competition is working within the financial services sector to meet the needs of lower income households; and
  • For local authorities to do more to engage the main retail banks in strategies to address the problem of local debt ‘hot spots’.

Commenting on the report, CfRC Director, Damon Gibbons, said:

“Our recent report ‘Britain in the Red’ showed total unsecured debt for UK households (which includes credit cards, payday loans and student loans, etc., but not mortgages) rose by £48bn between 2012 and 2015 to reach £353bn. But this is not evenly shared across UK households. Debt hot spots are found in lower income communities and those with a higher proportion of young people and those living in rented accommodation. The impact of household debt is well evidenced resulting in poorer health and financial exclusion. It is essential that we have comprehensive data, so that we undertand the nature and location of debt hot spots and can target effective solutions to tackle it.”

Jennifer Tankard, Director of the Community Investment Coalition (CIC) said:

“In 2013 the British Bankers Association (BBA) and Council of Mortgage Lenders (CML) voluntarily published net total lending data by Postcode Sector for Great Britain, placing the UK at the forefront of international efforts for greater transparency to support financial inclusion. It was hoped that the data would help to assess local lending markets and the gaps within these, supporting the development of targeted solutions to fill the gaps, for example, scaling up responsible finance providers. But as the report recommends, that data requires significant improvement before this can happen. The FCA also has an important role to play and needs to do more to ensure competition within the financial services sector meets the needs of lower income households.”

Ben Hughes, Chief Executive of Local Trust which funded the report said:

“At Local Trust, we recognise the need to better understand patterns of local indebtedness. Knowing who is effected, in which areas and how, enables a more coordinated response and allows for better targeting of resources at areas and communities facing greatest need.

St Matthews in Leicester, a Big Local area, have made it a priority to help residents avoid over-indebtedness and to support the development of credit union provision.  We know that it’s possible for communities to take positive steps like this to tackle financial exclusion, with the support of lenders, community finance organisations and local authorities.

As this report shows, debt levels vary, even between neighbouring areas, and where there are particularly high levels of household debt, it’s going to be harder for people to get on a more secure financial footing. This report shows the need for robust and comprehensive data on debt ‘hot spots’, so that more communities, local authorities and lenders can work together to find solutions.”

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By | 2016-12-15T13:35:34+00:00 October 20th, 2016|Blog|2 Comments

About the Author:

Damon Gibbons

Damon is the Director of the Centre for Responsible Credit.

2 Comments

  1. Holly Law February 23, 2017 at 1:11 pm - Reply

    I’ve just read the report with interest while pondering if we could replicate the study in our area, Your conclusions point out that payday lending, overdrafts and credit cards are not included in the analysis and the findings would be strengthened by the inclusion. I wonder if there is a reason you are not also considering the merits of the including government / local authority debts – for example council tax arrears?

    • Damon Gibbons
      Damon Gibbons February 24, 2017 at 1:31 pm - Reply

      Thanks for the comments Holly. We agree that it would be good to include government/ local authority debts such as Council Tax, or indeed other debts such as rent arrears for Council and Housing Association tenants, in a study of this kind. And, ideally we would also be able to include utility debts. Unfortunately, details of these debts (in terms of their distribution amongst Lower Super Output Areas) were not available to us. In addition, the main focus of the study was to examine how far the BBA disclosure framework was helpful and in what ways it needs to be improved to facilitate future, hopefully more comprehensive, mapping exercises.

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