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Debt: Are Self-Employed the Most Vulnerable?

09/04/2015 15:55 BST | Updated 08/06/2015 10:59 BST

The UK's high level of personal indebtedness - our addiction to debt, as it's sometimes called - is a known phenomenon. It peaked a couple of years ago at a figure slightly above our GDP, a fact which Credit Action (now known as The Money Charity) expressed succinctly on its website as follows: "individuals owe more than what the whole country produces in a year." It was recently the case too that we spent more on credit cards than the rest of the EU combined. Total personal indebtedness began to reduce after the 2008 banking crisis, as people began to draw in their horns; but I feared it might well start to rise as the 'recovery' messages start to take hold. In fact The Money Charity now confirms that "people in the UK owed £1.471 trillion at the end of February 2015." That was up slightly on a year earlier.

If the upward trend continues, might self-employed people again be the most vulnerable, with their variable incomes? I recall a report making this point by the debt advice charity StepChange, previously known as CCCS (Consumer Credit Counselling Service). They've been giving free and impartial debt advice for over twenty years, so what they say and write on this subject is always worth attention.

The charity used to publish a quarterly Consumer Debt and Money Report but have now stopped, maybe because of budgetary cutbacks. I've written before about the last edition of the report, which pointed out two main issues:

• There were regional variations in the burden of personal debt

• There were special risks for self-employed people.

There are, of course, regional variations in almost anything. What was most striking about those variations was that the region where people were spending the highest proportion (30%) of their disposable income on debt interest payments was the South East. If you don't live in the UK, you might not know that this is the region always seen as the most affluent. That trend is accelerating; from 2007-2013, London and the South-East accounted for 48% of the UK's growth.

However, the next section in the report's summary really hit me in the face:

Self-employed struggling: partly because of high levels of secured borrowing - possibly taken out to keep businesses afloat

Self-employed people advised by the charity owed on average £300,000.

Clients in part-time or full-time employment had an average debt load of 4.1 times their income. For self-employed people this rises to 18.6 times their income.

[N.B. The figures apply to debtors who are or were clients of the charity, as of the third quarter of 2012. They are not necessarily typical of the population as a whole.]

The difference between 4.1 times income and 18.6 times income was a shock; but I can empathise, because I was in a similar position fifteen years ago. I had a business that had done well for five or more years but then "fell on hard times", to put it euphemistically. Like the clients of StepChange, I increased my borrowings (secured or unsecured, they were still debts) in an attempt to keep the business afloat. By the time I decided that strategy would not work, closed the business and concentrated 100% on solving the debt problem, my total borrowings were several times my income. Not eighteen times, but a lot. How I solved the problem is told in my book Back to the Black ... how to become debt-free and stay that way.

It is encouraging to note that StepChange is 'putting its money where its mouth is', by providing specific advice for self-employed people.

By the way, that StepChange report was based on data from the third quarter of 2012. My question is this: if the charity were to update it, what changes would be found? My suspicion is that the main points: about regional variations; and about the massively greater debt burden, relative to income, of self-employed people, would be broadly unchanged.

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A shorter version of this post has appeared on my own blog.