UK Families 'Among World's Most Indebted'

The average household in Britain has nearly £8,000 worth of debt from loans, overdrafts and credit cards, despite spending three years trying to pay them down, a study has found.

In its Precious Plastic report, accountancy firm PricewaterhouseCoopers (PwC) said British families paid off around £355 of unsecured debt in 2011 but with £7,900 outstanding on average, they still remain "among the most indebted in the world".

PwC predicts households will continue on the austerity path, reducing their debts by a further £400 this year.

Despite three successive years of net repayments, consumers have hardly scratched the surface and at this rate it will take nearly 20 years to fully pay off the outstanding amount.

PwC financial services director Simon Westcott said: "UK consumers are among the most indebted in the world, with the average UK household still saddled with nearly £8,000 of unsecured debt.

"Although the UK Government's austerity drive appears to be hitting home, with households paying off an average of £355 worth of their debt in 2011, three years of austerity by UK consumers has only made a small dent in the total levels of borrowing.

"In addition to this, our credit confidence survey has shown that there is a growing reluctance to borrow in the future and a marked deterioration in confidence about meeting repayments, particularly among 18 to 24-year-olds."

The squeeze on household finances is set to continue, according to a separate study, with businesses planning to award average pay rises of just 1.1% this year.

The report by ICAEW/Grant Thornton said once inflation was taken into account, the increases will feel like a pay freeze for most workers.

It said the private sector would struggle to create jobs quickly enough to stop unemployment rising and urged Chancellor George Osborne to use the Budget in March to boost business and prevent the UK slipping back into recession.

Although the US consumer market is usually a strong indicator of UK sentiment, PwC said austerity measures in Britain have filtered down into consumer behaviour.

"One thing that is in sharp contrast to what we're seeing in the UK where unsecured borrowing has come down by about 5% last year is the data that has recently come out of the US where in November last year we saw unsecured borrowing rise at an annualised rate of 10%. That's the fastest growth in nearly a decade," Mr Westcott told Sky News.

"We're seeing quite a divergence now in the way that US consumers and UK consumers are starting to behave."

Meanwhile with nearly one million credit cards discarded in the last year, PwC surmised that the credit card may be on its way out as more and more consumers turn to digital technology and payday lenders for credit, and debit cards become the preferred method of payment.

"Forty-five years since it was first introduced, the credit card is suffering a mid-life crisis," Mr Westcott said.

"The longer term trend suggests that numbers will continue to decline, with the younger generation showing a preference for debit cards and emerging digital alternatives such as mobile payments.

"This generation seems unlikely to switch to increased credit card usage in later life, as perhaps they would have done in the past, suggesting that debit cards, mobile payments and other innovations will force the credit card into an ever decreasing market."

"Alternative lenders" such as high-interest payday loan firms gained popularity over banks due to their apparent convenience and simplicity.

"Mainstream lenders need to be aware that what may have begun as a last resort could be an enduring relationship as consumers are pleasantly surprised at the convenient and innovative service they receive from these smaller, more agile providers.

"As these providers become more conventional, we are likely to see them venture further into the mainstream market with their own credit card, longer-term loan products or even current accounts."