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Pay freeze and wage cap forcing public sector workers into debt, claim unions

UK households are increasingly in debt because of a real-terms decrease in wages, especially for public sector workers, the TUC has said.

New research from the TUC shows that total unsecured debt for UK households (including credit cards, payday loans and student loans, but excluding mortgages), has risen from £48bn in 2012 to £353bn in 2015.

The TUC said that households are being forced to borrow money “almost by default” because of a real-terms decrease in wages, linked to the public sector pay freeze and a lack of infrastructure spending.

Responding to the survey, Dave Prentis, general secretary of Unison, said: “Many of those affected by debt will be public service workers who have suffered eight years of zero pay rises, followed by a government imposed cap on earnings.

“This report rightly draws a link between increased debt and stagnant wage growth at a time when rent and transport costs continue to rise. Many families are having to make choices between paying the rent and feeding their kids.”

Unison recently accepted a pay deal for council workers in which most will see their wages increase by 1% over two years.

A recent report from the Chartered Institute of Personnel and Development found that public sector pay is failing to keep up with the cost of living.

In total, 3.2 million, or one in eight, households are in ‘problem debt’, where more than 25% of their income is spent on unsecured debt, and 1.6 million are in ‘extreme problem debt’, with more than 40% of their income spent on debt.

The issue affects low-income families the worst, with 1.2 million of the extreme problem debt households on an income below £30,000 a year.

The report warns that conventional measures of household debt, which show it to be at a record low, are unreliable because they do not factor in other necessary costs for households beside debt.

It also said that “the financial pressures on households are likely to increase” as the UK’s vote to leave the European Union causes a fall in the value of the pound and a rise in imported goods and services.

The TUC said that the government should improve its measures of household debt and establish an official target for reducing the burden.

It also recommended that as well as promoting employment, the government should identify the groups of debtors who are most at risk, and consider making it easier to grant Debt Relief Orders.

Frances O’Grady, general secretary of the TUC, said: “Higher wages must be at the heart of the government’s economic plan. We need a return to proper year-on-year pay rises, and a higher national minimum wage.”

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Denis   25/08/2016 at 11:59

Dream on, Frances. There is no chance of a return to "proper year on year pay rises" - that day is done, unless of course you are an MP, a FTSE100 boss or council CEO.

Simon Alford   31/08/2016 at 19:12

Local Authorities are not taking the erosion of real wages seriously. It's not a magic wand that is required. It is more imaginative ways of tackling the issue that are required. Real wages have declined seriously. Local Authorities still fondly imagine they are good employers - time to deliver on the rhetoric I am afraid.

Rebecca   13/02/2017 at 15:03

Long gone are the days of the council being a 'good employer' giving a 'job for life'. After 16 years in the Authority, I feel less valued and much less likely to obtain good employment than I did all those years ago when I left school. it's a con. the chief officers have had their criminal cases dropped but miraculously are still receiving full pay yet nobody else has had more than 1% in 8/9 years!!! it's a case of too many chiefs, not enough Indians I'm afraid!!!

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