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Nearly 3mn people in the UK fell into financial difficulties last year, increasing the likelihood of being excluded from financial services.
Some 20.3mn people, or 44 per cent of the UK adult population, are now living in financially vulnerable circumstances, according to a two-year study by not-for-profit Fair4All Finance and research agency Trajectory, which warned that these people “face paying more just for being poor”.
People with flaws in their credit scores risk being excluded from accessing affordable financial services, being forced instead to rely on expensive options such as subprime lenders.
“Our findings leave no room for doubt that the current financial services system is not working for everyone,” said Sarah Porretta, deputy chief executive at Fair4All Finance. “In an age where every penny counts for households and the public sector, the poverty premium is costing the country a staggering £2.8bn per year.”
The biggest rise in those living in financially vulnerable circumstances has been seen among homeowners or renters who are managing higher-than-average long-term debts from multiple sources. The number of people in this group who found themselves in financially vulnerable circumstances rose 57 per cent to 3.6mn between 2022 and 2023.
Most people in this group are using personal credit to cover rent or mortgage payments, taking out high-cost payday loans, and are struggling to manage their debts due to stigma or lack of financial awareness.
Young adults are also suffering, with 1.9mn borrowing regularly and not building up their savings due to rising costs, resulting in a 45 per cent increase between 2022 and last year.
Fair4All Finance defines people living in financially vulnerable difficulties as those who have struggled with debt or relied on savings as a source of income within the past two years, been without permanent housing or lived in council or social housing in that time, and those who have used alternative financial services including credit unions, community development finance institutions or payday loans.
Those with a household income of less than £25,000 a year are also included, or those who have essential expenses that exceed their annual income as a result of rises in the cost of living.
“Everyday money worries are driving up absences from work and reducing productivity, which is creating an additional £6.2bn burden for UK employers,” Porretta added.
“We need to view financial inclusion as a key enabler for growth. Everyone needs access to financial products to go about their daily lives, manage their money and be economically active.”
Porretta welcomed the new government’s pledge to establish a financial inclusion strategy. “The time has come for action to create a fully inclusive financial services system that works for everyone,” she said.
The study included an online survey of 3,101 financially vulnerable people, as well as a nationally representative online study with a sample of 1,500 people. Both were taken in December 2023.