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Inflation has risen to over 10% in the UK in the last year its highest level in over 40 years. Inflation has been rising sharply since Covid restrictions ended and the economy reopened on the back of soaring fuel, energy and food costs. The Institute for Fiscal Studies has said that the poorest fifth of households could face inflation of 18% (compared to 11% for the richest fifth) as they spend a larger proportion of their budgets on energy and food, the costs of which are rising so fast.

Recently released figures from the Bank of England29 appear to show the impact of cost of living increases on borrowing levels with individuals borrowing an additional £1.8 billion in consumer credit in June 2022 which is above pre-pandemic average. Credit card borrowing rose at its fastest annual rate since November 2005 at 12.5% with other forms of consumer credit including unsecured personal loans and overdrafts also rising at the fastest annual rate since March 2020 at 4.1%.

The Rebuilding Britain Index30 has found that the Cost of Living Crisis is having a significant impact on UK households. More than one in ten (13%) of UK households says they will not be able to cope and there is nothing left for them to cut back on. The situation is worse for low-income households – 28% of UK households with an annual income below £20,000 saying they will be unable to cope and have nothing left to cut back on. This research also found that the impact of the Cost of Living Crisis is not being felt equally across the UK with households in Northern Ireland, the South West of England and Yorkshire the least confident that their current income will be sufficient for them to maintain their current lifestyle this time next year.

Analysis of Bank of England research carried out by the Jubilee Debt Campaign31 found that in September 2021 almost 10% of UK households reported that loan and interest payments were a heavy financial burden, a 35% increase on the previous year’s figures. This was before the winter increases in energy prices and the removal of the Universal Credit £20 uplift. The Jubilee Debt Campaign states that coming on top of years of stagnant incomes and a pandemic that the Cost of Living Crisis threatens to pull millions more people into debt.

A report by the Financial Fairness Trust33 into the financial wellbeing of UK households is giving an insight into new challenges such as the Cost of Living Crisis on households. It has found that one in six households (1.4 million) are now in serious financial difficulties compared to one in ten in October 2021. The report outlines that the Cost of Living Crisis is having an impact on household’s ability to pay their bills with 14% reporting they had missed at least one payment of a household bill in June 2022 (up from 9% in October 2021). It also showed changes in how households are using credit with 7.8% of households having four or more credit cards (up from 5.8%) and the number of households only making the minimum payment on at least one card rising to 14% from 12% in October 2021.

Citizens Advice have warned that low income families, hit by a triple whammy of the £20-a-week Universal Credit cut, soaring energy bills and rising inflation, will face financial hardship. Citizens Advice research34 on the cost of living crunch reveals that one in ten families (3.2 million households) face financial crisis. It found that even if living on a minimal budget (the financial plan its advisers use to support people through a debt management process) more than 3 million households would be in the red or unable to cover the essentials. It also showed that a further 380,000 households have less than £50 spare each month after covering their basic living costs, putting them at risk of hardship if they faced an unexpected bill.

StepChange research35 has found that one in five people (21%) think that external financial pressures such as increases in the cost of living will cause them to go into debt they would be unable to pay back. Further data from StepChange36 shows that the cost of living is now the second most commonly given reason for debt with the number of clients giving cost of living as a driver of their problem debt at 15% more than twice the rate given in 2021.

The latest Asda Income Tracker37 has found that across the UK the amount households have to spend on themselves after paying taxes and essential bills fell by 11.4% during the fourth quarter. Northern Ireland saw the largest fall in discretionary household income declining by 27.6% year on year to an average of £93 per week. This is a seven year low with Northern Ireland being consistently at the bottom of the league table. The Consumer Council’s Northern Ireland Household Expenditure Tracker38 has found that Northern Ireland’s lowest earning households have only £24.41 discretionary income after all their bills and living expenses. Discretionary income has fallen for Northern Ireland’s lowest earning households for five consecutive quarters.

The financial health of the Northern Ireland population also gives cause for concern as we face into this Cost of Living Crisis. The Northern Ireland Life and Times Survey found that a quarter of respondents could not afford to pay an unexpected bill of £500. The National Institute of Economic and Social Research estimate 43,000 households (6% of all Northern Ireland households) will see their costs exceed their disposable income and 44% of families in Northern Ireland have no savings compared to 16% of UK families.39

There are clear links between money problems and mental health issues and evidence repeatedly shows that financial worries and poverty are key contributors to mental health problems. Rises in the cost of living add to the pressure on household finances particularly for those on the lowest incomes with resulting increases in anxiety and mental health problems. This toxic cycle of money worries and mental health problems has the potential to create a mental health crisis out of the cost of living crisis as suggested by the Money and Mental Health Policy Institute. 40 Their research shows that people with mental health problems are more likely to say that the rocketing cost of living has had a negative effect on their mental health and they are also more likely to have borrowed money or cut back on spending in response.

A report from the Mental Health Foundation41 which includes Northern Ireland data reveals mental health risk ‘red flags’ with people less able to do the things that support good mental health and wellbeing due to their financial situation. Their research found that concern about finances negatively affected people’s quality of life with people reporting poor sleep and behaviour changes detrimental to good health. Previous research by the Mental Health Foundation found that more than 4 in 10 people in Northern Ireland have been anxious (44%) and/or worried (41%) about their finances in the past month and more than half of younger people (aged 18 to 45) have been anxious (55%), worried (48%) or angry (33%) about their finances. 42 The Mental Health Foundation has warned that the number of people experiencing poor mental health will likely increase as a result of the Cost of Living Crisis and as more people struggle to make ends meet.

Research by Inspire43 has found that the Cost of Living Crisis is having a profound impact on people’s mental health in Northern Ireland with 79% of those surveyed saying that their mental health has been negatively impacted by the rising cost of living and 66% were anxious about how their finances will fare over the next 12 months.

There is a clear need for further Government action to help people through the Cost of Living Crisis. Without this help there are concerns that there will be significant increases in the volumes and severity of debt and mental health issues. Many people on the lowest incomes are struggling to make ends meet and afford the essentials due to the impact of this Crisis and this is causing more people to have to borrow further fuelling an associated debt crisis.


This is an excerpt from the Consortium’s response to the Dept for Communities call for evidence on Debt Respite
Policy Proposals for Northern Ireland.