LONDON: Britain’s middle class is showing signs of buckling under financial pressure, with incoming Prime Minister Andy Burnham considering a wave of interventions to ease the cost of living.
The share of middle earners failing to pay direct debits has doubled since 2021 with an increasing number missing payments on gym memberships and loans, analysis of official data showed.
Meanwhile, personal insolvencies have rocketed to their highest since the aftermath of the financial crisis and the number of households in arrears with their energy bills has also hit more than one million.
The new prime minister, who was due to formally take up the role yesterday, is under pressure from the left wing of his Labour party to support households and go further than the targeted measures taken by his predecessor.
The Trades Union Congress warned last Friday, as Burnham was confirmed as the new Labour leader, that his government needs to “hit the ground running and focus relentlessly on improving the living standards of working people”.
The former Greater Manchester mayor has vowed to set out a 10-year plan to bring down the cost of essentials for families and provide Britons “some breathing space as soon as I can”.
Labour is lagging behind Nigel Farage’s populist Reform UK and the Conservatives among middle earners in national polls.
Households have been hit by a series of inflationary shocks in recent years, as well as rising unemployment and a surge in interest rates from rock-bottom levels.
The war in the Middle East has been the latest hit to UK inflation with the effective breakdown of the US-Iran truce stoking concern. That has delayed the Bank of England’s plans to provide relief for households by cutting interest rates.
“While headline figures around inflation and interest rates have stabilised recently, half a decade of inflated prices are taking their toll on people across all income brackets,” said Peter Tutton, director of policy, research and public affairs at debt charity StepChange.
“With further price shocks likely as a result of the conflict in the Middle East, we’re particularly concerned that our debt advice service is already showing a 13% year-on-year increase in demand.”
The middle classes are prioritising their monthly mortgage payments over other bills, according to the data from the Office for National Statistics.
The overall failure rate on direct debits for the middle fifth of households has jumped from 0.8% in early 2021 to over 2% as of June, specifically rising to 3.7% for loans and 3.3% for gym memberships, over 2.2 and 2.7 percentage points since their 2021 lows. For mortgages it has increased only slightly to 0.5%.
In a broader sign of households struggling, the number of Britons entering insolvency has hit its highest level since early 2010 when using a three-month average.
A Bank of England survey earlier this month showed a gauge measuring defaults on credit cards and other unsecured loans soared to its highest level since the financial crisis in the second quarter. — Bloomberg
