“Need Cash Quick, Barbara? Get up to £1000 Now - No Credit Checks!”

My junk mail box has a daily inflow of such offers, and so, I bet, does yours. Some are transparent scams for getting bank details. Some are illegal loan sharks, the e-version of the doorstep lenders who sniff out a family in trouble, and call to help out, shortly before putting the boot in and taking everything they can get away with.

 But a significant number are registered and, as required by law, give company details and spell out their extraordinary APRs, eg  “1737% (variable)”. Some even warn applicants that their service is suitable only for short-term loans. One, for example, advises me to borrow for a special anniversary gift or a weekend away before pay-day, explaining that “if £100 was borrowed for 31 days at a fixed rate of £25 per £100 borrowed, the total repayable by one payment is £125”.

Alas, we all know that in austere times the principle users of such services are not people needing to buy expensive anniversary presents a week before pay-day but, increasingly, hard-pressed working families or students who are getting behind with rent and household bills. At the very desperate end are those who routinely borrow to buy essentials including food and who find themselves caught in a spiral of losing more of their wages each month to keep the loans companies at bay. The current shorthand “payday loans” says it all. These are loans for working people whose wages run out before pay-day.

Like most of the financial figures that make the news these days, the estimate of total personal debt in Britain is a figure with too many zeros to comprehend (£1,460,000,000,000).  According to Credit Action, a UK charity hoping to educate the nation about money, this breaks down into an average household debt of £55,514, including mortgages. The figure that should concern us more, though, is the £210 billion, or £7,981 per household, of outstanding unsecured (mainly credit card and high-interest) loans. This doesn’t include loan sharks or other unregistered lenders and we don’t all have debts. Those who do, then, are spending huge proportions of their already squeezed incomes on interest payments.

How much is enough?

This week, the Joseph Rowntree Foundation reports that more and more working families are falling far behind what the public perceives to be an acceptable minimum standard of living. Its Minimum Income Standard (MIS) report details what goods and services members of the public thought were needed for an acceptable standard of living. JRF then quantified the level of income required to pay for them. They calculated that a single person in the UK would need at least £16,400 a year for an acceptable MIS. Two working parents with two children would need £36,800 -  a £5,000 increase on the 2008 figure (when JRF started to track the MIS). The increase,  says the Foundation, is driven by soaring childcare and transport costs combined with cuts to in-work credits. (An MIS calculator on the JRF website spells out what is and is not included).

Julia Unwin, Chief Executive of JRF, said of the findings: “Families have a monumental task trying to earn enough to get by. Parents facing low wages and pressure on their working time have little prospect of finding the extra money the need to meet growing household expenses.”

Donald Hirsch, co-author of the report points out that the public perception of “essentials” has not changed since 2008. Parents want, as before, nutritious food and to pay for the kind of activities their children require for social inclusion. In fact, he says, people are leading more modest lifestyles: “What has changed is the ability of many families to afford …  essentials.”

Even with in-work benefits, average wages of working families fall well short of this MIS. The hourly wages a couple with children would each need to earn would be £9.39, says JRF. For a lone parent it would be £12.20.  The National Minimum Wage is £6.08.

Last month the trade union Unite reported that pressure on family income had led more and more of its low-paid members to seek payday loans. A survey of 350,000 workers revealed that one in eight had to resort to “payday” loan companies to tide them over till they were next paid. Unite found “troubling levels of debt as members report housing and food costs the chief strains on their shrinking incomes”. It noted particular problems for those under 25.

Many workers were resorting to high-interest lenders such as Wonga, The Money Shop and Quick Quid “as the options to use savings or turn to family, friends or the banks for short-term loans run out”. The union calculated that those taking out loans were losing, on average, three days pay a month to interest payments. In other words, a substantial number of workers in the UK are not paid enough to keep them out of the clutches of loan sharks.

Child poverty

Last month (June 2012) a report from Resolution Foundation, a thinktank dedicated to examining the lives of low to middle earners, noted that though child poverty in the UK had fallen since the mid-1990s as a result of government tax credit policies, the nature of child poverty had changed. In the 1980s and 1990s, the families under pressure tended to be those where parents were unemployed; today, increasing numbers of families falling below the poverty threshold have at least one working parent.

The problem of working poverty – estimated by Resolution Foundation to cover 5.8 million households – runs completely counter to the Government’s mantra that the way out of poverty is to get families off benefits and into work. Announcing cuts to working tax credits in June this year, for example, Iain Duncan Smith, Work and Pensions secretary said:  “Getting a family into work, supporting strong relationships, getting parents off drugs and out of debt, all this can do more for a child’s wellbeing than any amount of money in out-of-work benefits.”

But as these reports reveal, encouraging (or coercing) poor parents into work is not a solution. Today, 61 per cent of children considered to be in poverty already live in homes where parents work, up from 45 per cent in the mid-nineties. We are seeing poverty in households where two parents work full-time.

Even where low earnings just about match frugal outgoings, small financial setbacks in daily life can tip families into a debt cycle, as researcher Katherine Green discovered when she tracked the lives of seven low-to-middle income families over a year. Her findings, published in Life on a low income by Resolution Foundation in April  2012, show how unpredicted events such as the cost of a friend’s funeral or a landlord’s late repayment of a rental deposit can force a family to take out high-interest “doorstep” loans. She gives examples of families who needed just a small initial loan but ended up paying  £200 to £350 a month for long periods as they tried to restore equilibrium. In the year in which Green followed the families, all reported difficulties with increases in living costs, particularly for food and fuel. Most experienced pay freezes, pay cuts and reduced tax credits.

Green concluded that quite small policy interventions would make significant difference to such families. These include better marketing and clear points of access for free financial and debt advice; better regulation of the private rented housing sector; and far better free childcare provision for working parents (currently 15 hours for 3-4-year olds for 38 weeks a year) including affordable or free local authority-run holiday childcare.

But beyond financial advice for those who have already become burdened with debt, there is also an urgent need for cheaper credit for those currently spurned by the high-street banks. Emergencies such as illness, urgent school needs etc, do occur. There has to be better provision than credit cards or payday lenders.

We are all paying dearly for years of reckless trading by the big banks, so surely we are entitled to ask government for some imaginative thinking on how to provide working parents and young workers with reasonably priced credit.

In the longer term, we need to ask who benefits from our bargain-basement low-wage economy, and who ends up paying for it. As JRF has said: “We have to get to grips with problems in the job market …(including) the extent of low-paid and low-hour jobs.”