rising debt

Rising levels of poverty are putting millions at risk from spiralling debts, with the Government facing renewed calls to crack down on lenders who make large profits by exploiting the poor. Campaigners call for a crackdown on lenders who charge exorbitant interest rates. Those on benefits and the working poor are at greatest risk, according to new government figures which show that the number of payouts to people forced to appeal for emergency financial help from the Government has almost trebled in only five years. Personal debt is now at £1.5 trillion – more than the UK's gross domestic product. It is those least able to pay that are hit the hardest, with people having little option but to resort to what campaigners condemn as "legal loan sharks" – companies reaping the profits of exorbitant interest rates of up to 2,600 per cent a year.

Sian Williams, the head of financial inclusion at the social welfare charity Toynbee Hall, said: "In the long term, we expect to see previously financially stable and asset-rich individuals falling below the poverty line and becoming dependent on doorstep lenders, and possibly even on loan sharks. Our society gains nothing by allowing even more families to fall to a level of poverty from which they have no hope of recovering."

Poverty-stricken adults from some of the most vulnerable groups in the community applied for more than 3.6 million "crisis loans" in the last financial year – up from 1.3 million in 2005-06. The situation is likely to worsen, with continuing cuts, job losses and a VAT rise next month. A rise in interest rates could cause serious financial hardship to thousands of homeowners.The number of mortgages deeply in arrears has been more than a quarter of a million since 2008, according to a report by the Joseph Rowntree Foundation, released this month. It warns: "The potential exists for a sharp rise in numbers of repossessions at some point in the future if lenders deem that to be in their interest."

Gavin Hayes, the head of the think-tank Compass, said: "The key point is that the bank base rate is only 0.5 per cent. Interest rate increases will happen; it's just a matter of by how much and when. Either way, it's a debt time bomb waiting to go off."

In a further sign of growing poverty, the Government confirmed yesterday that job centre staff will start issuing vouchers for people to exchange for emergency food supplies.

"When public-sector redundancies, housing-benefit and general-benefit reductions kick in, as fuel costs continue to escalate, and when the interest rates go up, it is likely that as many as one in 10 homes in the UK will soon be in serious debt," said John Franks, the operations manager at the charity Community Money Advice.

The high-cost credit sector – including pawnbrokers, pay-day loan and rent-to-buy credit companies – is worth more than £7billion. Provident Financial, Britain's biggest doorstep lender, saw its shares soar 66 per cent last month.

When the credit card bills start to arrive around 17th January, the third Monday in the month, millions of Britons will be calculating the true cost of Christmas. However, it's not going to be depressing news for everyone because, at about the same time, 315,000 City workers will be rubbing their hands with glee at the news of their bonuses as bank bosses carve up a £7billion pot, says the Centre for Economics and Business Research.