10/04/2014 04:27 BST | Updated 09/06/2014 06:59 BST

Household Finances on the Edge

The debate about the prospects of the squeezed middle has been stoked up again this week, following a Social Market Foundation report which shows that many households have actually come out of the economic downturn better off.

For our advisers at StepChange Debt Charity helping more than half a million people a year with their problem debt, it is the opposite story from what they see every day. We see the people on low and middle incomes who end up falling into debt as they turn to credit to make ends meet. Rising costs eat up every last bit of their income, and a financial shock - like illness or reduced hours at work - can see people fall very quickly into a downward spiral.

We should all be pleased for those who manage to boost their income, and put their finances on a steadier footing. As the economy improves we hope that many more families will join them in rebuilding their finances.

But it is important that policy-makers do not overlook the millions of low and middle income families, who are still perilously close to the edge of their finances or already trapped in a cycle of unmanageable debt.

Our major survey of British family finances finds that 15million people are already showing signs of financial difficulty, 13million wouldn't have the savings to keep up with their essentials bills for a month if their income dropped by a quarter, and 16million would consider using unsecured credit to keep up with essentials.

Families with children, those in full-time work, 25-39 year olds and private renters were more likely than average to be struggling. These are the 'hardworking families', so often mentioned by politicians, but the fact is that they are rather hard-pressed.

Against a backdrop of changing and often insecure working patterns, even a strong economic recovery could still leave millions of households' finances in an unstable position. These are the new risks associated with the flexible labour market that has arguably kept unemployment from rising to the highs seen in previous recessions. With so many unable to cope with drops in their household income without resorting to credit, we worry that many could be easily thrown off the road to recovery.

Our new report, Life on the Edge, argues that policy-makers need to offer a new promise to help people establish resilient household finances, and ensure they have stronger, more comprehensive safety nets to help them bounce back when they fall on hard times. People who do their best in straitened times deserve support, especially when things go wrong.

Crucially, the welfare safety net must be complemented by support and flexibility from all the organisations providing essential services - such as utility companies, landlords, creditors and local councils, to whom people pay bills every month. We believe that they need to offer a much stronger package of support that ensures that struggling households get breathing space and time to help them get back on their feet. This could really help people manage income shocks without resorting to credit.

Policy-makers must ramp up their efforts to address income pressures. Families need more income so they can save, and need savings policies targeted at low and middle income households, who are poorly served by ISA incentives.

Making family finances more resilient will require stronger leadership, across government and industry. Policy-makers need to show that leadership and offer that promise now. A recovery that sees many more families tumbling off the edge into problem debt will be a hollow victory.