Research by the Trades Union Congress (TUC) has revealed that UK household debt rose sharply in 2016 to reach a record high. The average UK household now owes £12,887 (excluding mortgage debt). This is an increase of £1,117 per household compared to 12 months ago, representing a rise of around 9.5% – the highest annual increase since 1997.

Total UK household debt has reached £349 billion, well above the £290 million figure reached in 2008 at the height of the banking crisis. This £349 billion figure represents 27.4% of total household income, which is the highest share for eight years.

The TUC blames stagnant wages for the increase in debt levels, with people forced to borrow to make ends meet as their incomes fall in real terms.

Frances O’Grady, TUC general secretary, said:

“These increases in household debt are a warning that families are struggling to get by on their pay alone. Unless the government does more for working people, they could end the New Year poorer than they start it.

“Employment may have risen, but wages are still worth less today than nine years ago. The government is relying on debt-fuelled consumer spending to support the economy, with investment and trade in the doldrums since the financial crisis.

“There’s a lot the government could do to help. Public sector workers who have suffered severe cuts to their real pay since 2010 are long overdue a decent pay rise. The minimum wage needs to keep rising so the lowest paid workers can keep up with rising prices. And a major programme of public investment in rail, roads, new homes and clean energy could be targeted at communities where decent jobs are in short supply.”

Separate figures from the Bank of England show that total consumer credit lending rose by 10.8% – the highest annual growth rate since 2005. However, the Bank pointed out that the TUC figures may exaggerate the rise in household debt as the £349 billion figure includes a significant increase in student debts. The Bank’s own figures for household debt, excluding student loans, were £192 billion for the 12 months to November 2016. This figure is not a record, although it is the highest figure recorded in eight years.

Andy Haldane, the Bank’s chief economist, said:

“Interest rates are still very low, and are expected to remain so for the foreseeable future, so there are fewer concerns on debt servicing than there were in the past.

“There are reasons not to be too alarmed about it ticking up, but it is absolutely something we will watch carefully.”

Joanna Elson, chief executive of charity the Money Advice Trust, said:

“Consumer credit continues to soar, and this is something we should all be concerned about amidst the current uncertainty over the UK economy.

“Most people are currently able to handle this extra borrowing, but if the economy does indeed suffer in the years ahead, these extra debts could become even more difficult to repay.

“We would urge households to review their financial position carefully before taking on any new borrowing, and consider how they would cope with the repayments in the event their circumstances take a turn for the worse.

“The figures are even more stark when you consider that they only take into account some of households’ pre-Christmas spending.”

The figures serve as a reminder to consumer credit firms that while demand for their loans may be high, they must ensure that they continue to make responsible lending decisions and only grant funds to those who are likely to be able to repay it. Rigorous affordability and credit checks must be carried out on all applicants.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.