Huge rise in Scottish household debt as result of recession

There has been a surge in household debt in Scotland with a 'polarising' gap between the richest and poorest in the country since the 2008 economic crash, a leading think tank has said.

Juggling the family income to cover food, fuel and housing has become a bigger problem for many people. Picture: Monkey Business Images

In a stark finding, the Scotland Institute said that property and financial wealth, in terms of assets, are “increasingly becoming concentrated” in the 20 per cent richest households, while the proportion of income spent on housing, fuel and food has risen most among the poorest ones.

The Scotland Institute said that in 2006, median household debt in Scotland was £2,200, then £2,300 in 2010, but in 2012 it reached £3,500, before rising to £4,000 at the start of 2016.

All households, across all income groups, in Scotland have seen a decline in their median income since 2008, with a “significant drop” in the proportion of income received as wages, the report said.

The prolonged squeeze on household incomes since led to a sharp increase in median household debt to cover the cost of living, and a level that sees 52 per cent of households describe it as a burden, it added. However, the think tank suggested that the wealthiest had been protected from a fall in incomes by growing property wealth, which it said the poorest Scots were often completely excluded from.

It said: “While almost all Scottish households have seen their income decline as a result of the recession and UK Government policies, those who were already well off have become richer in terms of assets”, it said.

The think tank blamed the inequality and rising debt levels on UK government austerity, but stated that the Scottish government could act by improving funding to local councils. It also highlighted a “significant drop in the proportion of income received as wages, with benefits increasing” and said families with children have seen the largest drop, with this group 15 per cent less well of than in 2008.

Dr Azeem Ibrahim, Scotland Institute Executive Chair, said: “For many in Scotland, debt has become normal, being used not just for long term purchases but also to offset short-term income fluctuations.”