Mick McAteer, Chair, Registry Trust
Friday, 9th August 2024
A chance for a new approach to using data to protect vulnerable consumers and build financial inclusion?
Economic and financial conditions do seem to be improving as inflationary pressures ease, But, for millions of financially vulnerable households and micro businesses, there is no real sign of improvement in their circumstances.
Recent research concluded that millions of people are continuing to struggle, cutting back on essentials such as food and utility spending, and that unsecured debt is expected to see the highest annual rise in cash terms on record.[1] Other research found that the number of people living in financially vulnerable circumstances has risen by 16% over the year.[2]
We have made almost no progress on building financial inclusion and resilience post the financial crisis in 2008, so it should not be a surprise that millions remain financially vulnerable and many of those will turn to credit to try to make ends meet.
Registry Trust does not comment on fiscal, economic, or social policy. It is for Parliament and government to decide how and where financial resources are deployed and how much financial support should be given to give households. Other non-profits and charities campaign on those issues.
However, Registry Trust is the non-profit, trusted intermediary which operates the Register of Judgments in England and Wales on behalf of the Government. We maintain similar Registers for Scotland, Northern Ireland, Republic of Ireland, Isle of Man, and Jersey by agreement with the relevant authorities. Registry Trust is a critical part of the data infrastructure used in hundreds of millions of lending and other business decisions annually. So, as part of our Public Data for the Public Good ethos, we are keen to collaborate with stakeholders to use our existing data resource to better inform policymaking and help target interventions aimed at protecting financially vulnerable households and small/ micro businesses.
The headline data on economic growth, inflation, and earnings grab the attention, but those data conceal the very different experiences of different groups of people and businesses. If policy interventions are to have the biggest impact, they need to be targeted, and the data used to guide interventions must be relevant and timely.
A new government, with fresh thinking, brings an opportunity to rethink the role of data in identifying households that need support and targeting interventions so they have the most impact. There are 4.6 million individuals and micro businesses with at least one county court judgment (CCJ) registered against them. The timely, reliable, large scale data which Registry Trust stewards provides a powerful resource to allow policymakers, civil society, academics, and other stakeholders to understand what is happening at a granular level.
If you would like to discuss potential collaboration, please contact Mick McAteer, Chair, Registry Trust at: m.mcateer@registry-trust.org.uk
The big picture on the economy
How do things look for economically and financially vulnerable households? Millions of UK households have experienced very difficult times over recent years. After seeing average real wages (adjusted for inflation) stagnating in the aftermath of the 2008 financial crisis, they were hit by the Covid economic crisis, followed shortly after by the cost of living crisis.
The inflation rate did tick up again in July but it has come down significantly from recent highs, resulting in some positive news on real wages. The most recent estimates show that average regular pay in Great Britain (in real terms[3]) rose by 2.4% over the year to April/ June 2024, with average total pay up 1.6%.[4] That should provide some relief but it should be remembered that this upturn follows a sustained period of wage stagnation. It is almost hard to believe that real average earnings, as at April 2023, were still 8% lower than in 2008, fifteen years ago.[5] Real wages are not expected to recover to 2008 levels until 2026.[6]
And there are significant regional variations within this. Median real earnings in London were 12% lower, whereas real earnings in Northern Ireland were actually 1% higher, compared to 2008. Earnings are, of course, still much higher in London compared to the rest of the UK even with the real terms fall. Median earnings for full time employees in London, as at April 2023, were the highest at £796 a week. This compared to £614 a week for the North East.[7]
But the cost of living, especially housing costs, in different regions must be factored in. The West Midlands has the highest poverty rate at 27%, followed by London and the North East at 25%. This compares to an average poverty rate of 22% across England and 17% in Northern Ireland.[8]
For the poorest households, the situation has been particularly bleak since the 2008 financial crisis. Compared to 2010, overall, the poorest fifth of the working age population have lost over 14% of their income.[9]
As mentioned, on the positive side, there are encouraging signs that, despite a recent upward tick, the inflation rate has come down from its recent highs and household energy bills have fallen – however, that fall may only be temporary, see below.
Inflation as measured by the rise in the Consumer Prices Index (CPI) was 2.2% in the year to July 2024, up from 2.0% in the previous month. In comparison, inflation on the CPI measure was running at 11.1% in October 2022. The CPIH, which includes owner occupier housing costs, rose by 3.1% in the year to July 2024, up from 2.8% in the previous month. Within the headline figure, the inflation rate for different goods and services can be quite different. The CPIH rate of inflation to July 2024 for the All Services category was 5.7%, whereas the rate for the All Goods category was actually negative at -0.5%.[10]
Just because the inflation rate is lower, it doesn’t necessarily mean that prices of goods and services are actually falling. It usually means they are just rising at a slower rate. But it is worth remembering that, even if the rate of decline has slowed, the 11.1% rate seen in October 2022 had been the highest in 40 years.[11] It is also worth noting that overall prices had risen by 20% from July 2021 to June 2024. Prices on essential items are significantly higher - energy prices were up by 53%, and food prices up by 31% over the same period.[12]
A theme of this article is that the headline economic data conceals the very different experiences of different groups. Recent analysis found that the annual inflation rate (2022-23) for the poorest fifth of households was 2.6% higher than the rate for the richest fifth – 12.6% compared to 10%.[13]
Inflation had hit the Bank of England’s 2% target in June. After keeping interest rates unchanged for seven meetings in a row, at its latest meeting at the end of July the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5 to 4 to cut rates from 5.25% to 5%.[14] Although the MPC reduced rates, they still remain high by recent standards.[15] In its press release, the MPC signalled that monetary policy will need to remain restrictive for some time longer before it is confident that inflationary risks are managed. It is expecting to see inflation rise to 2.75% in the second half of this year. So, further significant cuts to interest rates do not appear to be on the cards.
The sharp increase in energy bills during the energy crisis was a big factor in the cost of living crisis, which disproportionately hit low income households. Domestic electricity and gas prices have now come down considerably from peak levels. In the most recent announcement (for the period 1 July to 30 September 2024) the price cap for a typical household which uses electricity and gas and pays by Direct Debit was set at £1,568 a year, the lowest in two years.
But experts forecast that bills would rise again, with Ofgem confirming a typical household paying £1,717 from October. Even with the recent falls, bills will still be more than £400 higher than three years ago.[16] So, it’s not so much of an improvement, but things being less bad.
Financial vulnerability
The Bank of England reports that while the position of households at the aggregate level appears resilient, the impact of higher interest rates and the cost of living impact will continue to put pressure on the finances of certain subsets of households. Renters and low income households are further running down their savings.[17]
The new analysis from the TUC mentioned above serves as a reminder of the financial vulnerability of millions of households. It says that unsecured debt (loans, credit cards, purchase hire agreements) is on course to increase by 9.4% (£1,660) in real terms, on average, per household this year. The TUC says that this would be the largest annual rise, in cash terms, since records began in 1987.
According to the TUC, the numbers struggling overall are down, but not for the most financially vulnerable. Four in 10 (42%) say they have cut back on essentials like food and utility spending this year. This number rises to nearly 1 in 2 (47%) for women. Just under one fifth (19%) said they have fallen behind on household bills this year. Younger households are struggling – over one in four (28%) of those aged 18-24 say they have fallen behind on bills.
Over one quarter (27%) say have they taken out debt (in the form of loans and credit) to cover unexpected bills since the start of the year. Over one third (37%) of adults aged 25-49 (when many families raise children) say they have taken out debt to cover bill shocks.
Consistent with this, the Bank of England reports that third-sector organisations are reporting that a significant number of lower-income households rely on consumer credit for essentials. Renters continue to struggle. NMG survey evidence for the Bank of England suggests the share of renters who have fallen behind on payments has increased slightly to 16.5% in 2024 Q1 from 15.7% in 2023 Q1, as rents have risen substantially alongside the increase in mortgage borrowing costs. Average UK private rents increased by 8.9% in the 12 months to April 2024. [18]
The recent research from Fair4All Finance, referred to above, paints a very worrying picture. It estimates that 20.3 million people are now living in financially vulnerable circumstances, an increase of 16% from the 17.5 million in 2022. The number of people deemed to have a reasonable income and who are also juggling high levels of debt has risen by 57% to 3.4 million. So, an additional 1.3 million who were not previously struggling have turned to unsecured loans and “buy now pay later” to make ends meet. According to the research, the use of food banks amongst financially vulnerable groups has risen from 11% to 15% over the period. [19]
Reductions in interest rates should ease the pressure on households with variable rate debts, but there may not be so much relief for a sizeable minority of mortgage borrowers when they come off their fixed rate mortgage.
According to the Bank of England, over three million, or 35%, of mortgage accounts are still paying rates of less than 3%. The majority of these will see their fixed rate expire before the end of 2026. A typical owner-occupier with a mortgage coming off a fixed rate between June 2024 and end-2026, could see monthly mortgage repayments increase by around £180, or around 28%. Within that number, a small proportion could experience some very large increases. Around 400,000 households could see an increase in their payment of 50% or more.[20] Of course, it all depends on when, and by how much, interest rates fall and how mortgage lenders respond.
We must not forget about small businesses and the self-employed. Recent research from the Money Advice Trust shows that the average amount of debt owed by small businesses and self-employed using its Business Debt Helpline has more than doubled since 2020, from £20,592 to £49,900. Over the same period, the average amount of personal debt owed by consumers using the service has flatlined.[21] Much of this appears to be driven by businesses having to take out Bounce Back Loans during the Covid pandemic.
Things are getting better for some, but for others it is more of the same
Recent research does support the view that things are improving for many people. Recent StepChange research conducted in January 2024 found that 28% of UK adults were showing at least one sign of financial difficulty, a fall of 5% from the same period in 2023.[22] The large scale Financial Conduct Authority (FCA) Financial Lives Study conducted in January 2024 found that the proportion of respondents reporting they were not coping financially or finding it difficult to cope fell from 36% last year to 28% this year.
Yet, as ever, the headline data can conceal very different experiences for different households. the FCA also found that 7.4 million adults felt heavily burdened by bills and financial commitments, compared to 5.8 million in the 2020 survey before the cost of living crisis hit.[23] There is clearly some way to go before conditions return to the state they were before the cost of living crisis.
The ongoing impact of the cost of living crisis and chronic financial exclusion is not felt uniformly across society. Previous FCA research found that Black adults (16%) were over twice as likely to be in financial difficulty as White adults (7%), and twice as likely as the national average to have high-cost credit or loans (20% vs. 10%).[24]
The FCA found that 55% of single parents were not coping financially, two and a half times the proportion of couples without children (20%). Half of renters were not coping financially, over twice the proportion of mortgage holders (24%) and nearly five times the proportion of those owning their home outright (11%).[25]
There is a vicious cycle between mental health issues and problem debt. People experiencing a persistent mental health issue (in three or four years out of four) are nine times more likely to find it difficult to manage financially than those who do not experience an issue. People experiencing long term financial difficulties are 5.5 times more likely to experience a mental health issue at the end of the period than those who did not have to deal with financial stress.[26]
The StepChange research referenced above found that 32% of women were in financial difficulty compared to 24% of men. Renters were significantly more likely to be in financial difficulty and problem debt than those who own a home with a mortgage.[27]
New lending in the high cost credit sector has halved since the FCA introduced tougher consumer protection and affordability rules on lending.[28] Research suggests that growing numbers of people are locked out of the mainstream credit markets and rejection rates have risen.[29] An estimated 10.7 million women were locked out of mainstream credit products. They were more likely than men to find it difficult to access mainstream credit, are less likely to be offered a good deal, and pay more for credit.[30]
What CCJ data can tell us
The fact that a CCJ exists is a clear indicator that an individual has experienced a financial problem or that the various systems intended to protect people have failed. Evidence of disproportionately high numbers of judgments in a local area or community is a sign that particular communities are adversely affected by conditions.
Of course, CCJ data cannot provide all the answers. The causes and conditions that lead to an individual getting a CCJ, or particular communities or groups in society being more financially vulnerable than others, are multi-factorial. The existence of a CCJ (and the rates of CCJs) can be down to the personal circumstances of the person/ business involved, economic conditions at a macro and micro level, the behaviours and attitudes of claimants who enforce the judgment, the effectiveness of consumer protection interventions, and availability of support networks such as debt advice charities.
Nevertheless, studying the data on CCJs can be a portal to allow for better understanding of the conditions facing people and communities, and the effectiveness of interventions and support services at a macro and community level. It can help narrow down and target analysis of conditions and policy interventions in a way that high level surveys cannot.
The latest full calendar year data shows there was a 16% increase in judgments registered across all jurisdictions, from 1.13 million in 2022 to 1.31 million in 2023. The number in England and Wales, the largest jurisdiction, rose by 16% over the period. Northern Ireland saw a big increase of 35.5% in judgments, while the number of decrees in Scotland fell by 11%.[31]
National and regional data is important, but we can obtain a more granular picture of what is happening at local level. Perhaps not surprisingly, there is a noticeable relationship between low incomes and the number of judgments issued in an area.
As the chart below shows, the rate of CCJs is around 2.5 times higher in the lowest income areas than in the highest income areas. It is worth noting that the relationship between household incomes and CCJ rate is not 1:1. The chart also shows that the rate of CCJs in similar low income areas ranges from 14 per 1,000 to 34 per 1,000. There are obviously some other factors that may influence the different rates of CCJs in individual areas.
Chart 1: Areas with greater income deprivation have higher rates of CCJs
Source: Registry Trust comparison of Upper Tier local authorities IMD ranking by income with CCJ density, as at 2022
We can look more closely at factors such as over-indebtedness. Previous Registry Trust analysis shows there is a clear relationship between levels of over-indebtedness and the likelihood of households in those areas having a CCJ.
As the chart below shows, the rate of CCJs is around 4 times higher in the areas of England and Wales with the highest levels of over-indebtedness, compared to better off areas.
A strong relationship between levels of over-indebtedness and CCJ rates in local areas is to be expected. But, again, examining the data, the rates of CCJs in areas with similar levels of over-indebtedness can differ considerably – two or three times higher in cases. There must be other factors to explain the variation.
Chart 2: Areas with higher levels of over-indebtedness have higher rates of CCJs
Source: Registry Trust analysis for AGM 2020, percentage of adults overindebted in local authority area measured (MAS), against consumer CCJ rate per 1,000 of population
As mentioned, a CCJ, as an ‘event’, can be due to a number of causal factors. These need to be unpacked. So, if we see that the rate of CCJs in one area is significantly higher than the rate in an area with a similar socioeconomic profile, then we can start to ask questions about why that might be the case and assess whether interventions are working.
Improving the data
In time, no doubt innovation such as Open Banking and AI will make a difference in consumer credit markets. Some firms are using innovation to good effect. It is far too early to tell what the impact of AI might be. But, with regards to Open Banking, it has to be said that for now the impact appears to be limited. It seems that, for the most part, consumers who already had access to good deals are getting better deals, with the technology and data allowing lenders to more easily profile and identify consumers that are less profitable and higher risk (according to their risk metrics).[32]
Until the time comes that innovative tech and data can make a significant impact, we will need to make better use of existing data to protect vulnerable consumers and promote better credit markets and inclusion.
Risk models are becoming more sophisticated and complicated by the day. We are deluged by data in financial and consumer markets. So, it is important to identify the data that matters. Despite all the innovation, the data that Registry Trust stewards remains one of the most critical anchor data sets in credit decision making.
However, the data is somewhat binary – people either have a judgment against them or not. This is why Registry Trust is working on three initiatives to enhance the data we steward. The initiatives are to:
- include the name of the claimant on the public register;
- address the problem of county court judgments (CCJs) not being marked as ‘satisfied’ on the public register; and
- create a partial settlements register.
These improvements would further enhance the utility of our data for the market, policymakers, regulators, and civil society. They would support more effective, targeted regulation and consumer protection, support better credit decision making in the market, and efforts to help consumers and small businesses with CCJs repair their finances. Further details of what we are hoping to achieve can be found on our website.[33]
We were very pleased that the Ministry of Justice recently consulted on including the claimant name on the Register, and were awaiting the outcome of the consultation with interest. However, the recent General Election intervened and understandably plans were put on hold. With the new government now in place, we hope that progress can be made on making a fairly small change to policy that could have a big impact.
Conclusion
As mentioned, there is an opportunity for fresh thinking on the role of data in identifying where support is needed and targeting interventions so they have the most impact. There are 4.6 million individuals and micro businesses with at least one county court judgment (CCJ) registered against them. The data which Registry Trust stewards provides a powerful resource to allow policymakers, civil society, academics, and other stakeholders to understand what is happening at a granular level. We are also working to improve the data held on the Register.
Registry Trust is keen to collaborate with policymakers, regulators, academics, think tanks, debt advice charities, and other stakeholders to use data to better understand the causes of financial vulnerability, and the effectiveness of different interventions aimed at protecting and supporting financially vulnerable people and small/ micro businesses.
Mick McAteer
Chair, Registry Trust
[2] Nearly half of UK adults now living in financially vulnerable circumstances - Fair4All Finance
[3] adjusted for inflation using the Consumer Prices Index including owner occupiers' housing costs (CPIH)
[4] Average weekly earnings in Great Britain - Office for National Statistics (ons.gov.uk) The total pay figure includes bonuses. The growth rate for total pay was lower than the rate for regular pay due to one-off bonuses paid to NHS staff in June 2023. The bonuses paid in June 2023 meant the baseline for comparison with June 2024 was inflated reducing the rate of increase over the year.
[5] Average earnings by age and region - House of Commons Library (parliament.uk)
[7] Average earnings by age and region - House of Commons Library (parliament.uk)
[9] Ratchets-retrenchment-and-reform.pdf (resolutionfoundation.org)
[10] Consumer price inflation, UK - Office for National Statistics
[11] UK inflation rate: How quickly are prices rising? - BBC News
[12] https://www.resolutionfoundation.org/press-releases/inflation-response-july-2024/
[13] https://ifs.org.uk/publications/living-standards-poverty-and-inequality-uk-2024 Analysis funded by Joseph Rowntree Foundation
[14] Bank Rate reduced to 5% - August 2024 | Bank of England The meeting ended on 31st July and the decision announced on 1st August.
[15] Bank of England cuts rates to 5% in first drop since March 2020 - BBC News
[16] Energy price cap expected to rise by 9% in October - BBC News The price cap was £1,277 in October 2021. Default tariff cap letter for 1 October 2021.pdf (ofgem.gov.uk)
[17] Financial Stability Report - June 2024 | Bank of England
[18] Financial Stability Report - June 2024 | Bank of England
[19] Nearly half of UK adults now living in financially vulnerable circumstances - Fair4All Finance
[20] Financial Stability Report - June 2024 | Bank of England
[22] StepChange-general-population-polling-report-April-2024.pdf
[23] Financial Lives cost of living (Jan 2024) recontact survey - Summary | FCA
[24] financial-lives-survey-2022-key-findings.pdf (fca.org.uk)
[25] financial-lives-cost-of-living-jan-2024-recontact-survey-findings.pdf (fca.org.uk)
[26] Always on your mind? Long-term money and mental health problems
[27] StepChange-general-population-polling-report-April-2024.pdf
[28] portfolio-letter-firms-high-cost-lending-2022.pdf (fca.org.uk)
[29] Inclusion Report 2023 (plend.com)
[31] Q4 and Year 2023 Statistics (registry-trust.org.uk) NB the smaller number of judgments and decrees registered in Northern Ireland and Scotland means % changes can be large.
[32] customer-data-access-and-fintech-entry-early-evidence-from-open-banking.pdf (bankofengland.co.uk)