Cost of living crisis: the areas of the UK where people are more likely to struggle with debts

Ahead of the Spring Budget, new research shows how more people are failing to keep up with debt repayments amid soaring bills

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A growing number of people in the UK are falling behind with their debts as the cost of living crisis continues, according to new research.

Households continue to borrow to meet the growing cost of living, according to a study by debt collection company Lowell, researchers Opinium and the US-based Urban Institute think tank.

And there are now as many people in default on their debts as there were at the peak of the pandemic, the research shows. One in eight UK adults (12.6%) have debts in default being managed by Lowell, the highest rate since 2020, according to the analysis.

While overall, the UK’s financial resilience is improving, this masks wide disparities across different towns and cities. Constituencies in Middlesbrough, Birmingham and Liverpool are among those where people are most financially vulnerable, the study shows.

John Pears, UK CEO at Lowell, said: “What this new data shows us is a complex picture of financial health in the UK. Overall it might be getting better, but we’re still miles away from where we were before the pandemic. Dive a little deeper and we can see a range of issues  bubbling under the surface. 

“The decline in overall financial vulnerability is important, but it’s still high. Default rates are rising. We need to think about what we’re doing, at an industry and government level, to improve the country’s financial health over the long term.”

The rising cost of living is likely to be a key focus when Chancellor Jeremy Hunt unveils his Budget on Wednesday.

A spokesperson for the Department for Work and Pensions said: “We recognise the pressures of the rising cost of living, which is why we delivered £1,200 of direct support to millions of households last year, including £400 towards energy costs, and will be providing a further £1,350 of support to the most vulnerable households in 2023-24. 

“Our Energy Price Guarantee is also saving the typical household another £900 this winter and we are increasing benefits in line with inflation at 10.1% from April, while our Household Support Fund is helping people in England with essential costs.

“Those in debt may be able to access the ‘Breathing Space’ scheme, which gives them time to organise debt advice and solutions, while the government-sponsored MoneyHelper service has information about debt management and free debt advisory support.”

A spokesperson for the Treasury added: "The best thing we can do to help families is to stick to the plan to halve inflation this year. This week at the Budget, the Chancellor will set out the next stage in our plan to bear down on inflation, reduce debt and grow the economy."

Lowell is one of Europe’s largest debt collection companies, taking on debts accrued with telecoms and energy companies, among others. 

The researchers’ Financial Vulnerability Index (FVI) scores each UK constituency from 1 to 100, with higher numbers signifying greater financial vulnerability. 

It combines analysis of Lowell’s 9.5 million customer accounts with official statistics from the UK Government and Office for National Statistics.

It is based on six components that capture a household’s ability to manage daily finances and resist economic shocks: carrying debt in default, using alternative financial products such as payday loans, claiming work-related benefits, lacking emergency savings, holding a high-cost loan and relying heavily on credit. 

This score continues to improve across the UK, but the researchers warned that some places, particularly less affluent urban areas, were being left behind. 

Across the UK, the North East of England was the region with the worst score while the South East had the best.

Scotland’s FVI score was better than the UK average, while the scores for Wales and Northern Ireland were worse.

Constituencies making up the so-called Red Wall continued to perform worse than the UK as a whole with an average score of 47.5, more than 6 points higher than the UK-wide score of 40.8. The gap between the Red Wall and the rest of the UK is widening, the analysis shows.

The trend in the Red Wall’s poor performance is not uniform, and some areas where the Conservatives made gains performed relatively well, such as Southport, Stockton South, Gedling and Bury South.

But many other Red Wall areas saw smaller-than average improvements in their scores, such as Wolverhampton North East, Darlington and Hartlepool. 

The Red Wall is defined as all constituencies the Conservatives have won in either by-elections or general elections since 2019 that they did not hold in the 2015 general election in northern England, the Midlands or Wales.