Drowning in debt

A tidal wave of debt is engulfing British households. In the middle of January, Citizens Advice revealed that it had helped 400,000 people with debt problems in 2025, an increase of nearly 45 per cent since what it calls the cost of living crisis “took hold” in 2021. 

The charity said that a “staggering” 13,300 turned to it for help in the first working week of 2026. 

It’s no surprise, then, that bankruptcy levels are rising. Insolvencies in the third quarter of 2025 were up 14 per cent on the same period in 2024. It’s a reflection of a Britain in which debt is crippling millions of households. 

Deregulation

Behind the scenes, massive dependence on debt is one of the consequences of the deregulation of financial markets in the 1980s.

Karl Marx wrote about debt in the third volume of Capital. He referred to the working class being “swindled in this form, and to an enormous extent”. He was clear that it was “secondary exploitation, which runs parallel to the primary exploitation taking place in the production process itself”. 

Marx was writing in the late 1800s. He saw debt repayments as more or less equivalent to the requirement to buy goods from capitalists in order to subsist. “The distinction between selling and loaning is quite immaterial in this case and merely formal,” he wrote.

That was then. Workers at the time were not able to access loans from banks unless they had property. Most loans were informal, from loan sharks, or from pawnbrokers. Marx could not have imagined how things would develop a century and a half later.

Above all, he was too early to anticipate what economists now call the “financialisation” of workers’ livelihoods. Increasingly, and now overwhelmingly, workers are reliant on financial markets and debt to manage daily life. The secondary exploitation that he talked about is still there, but now vastly expanded.

‘Increasingly, and now overwhelmingly, workers are reliant on financial markets and debt to manage daily life…’

Studies show that through to the late 1970s bank lending in Britain was more or less equally split between mortgage lending and loans to productive businesses (that is to say non-financial corporations) . It subsequently diverged rapidly.

By the time of the 2008 financial crisis, more than 60 per cent of bank lending was going on mortgages, with only about 25 per cent going to non-financial corporations. In other words, finance capital was allocating nearly two-thirds of its resources to mortgages.

The 2008 crisis led to a small decline in mortgage lending, but it is still around 60 per cent of bank lending. Inability of US workers to pay mortgages was a key factor triggering the crisis. 

Yet a large part of finance capital still depends on the ability of workers to meet their mortgage repayments.

Mortgage risk

As many commentators have noted, that is a major current risk. Rising consumer prices and increasing unemployment are now squeezing workers’ ability to meet their ongoing mortgage commitments.

But the banks and their shareholders seem not to care. Perhaps they have noted that the more indebted people are, the more likely they are to stay in low-paying jobs in case getting a better paid job doesn’t work out and they end up unemployed.

Indeed, a working paper by the Organization for Economic Co-operation and Development in 2020 – looking at 29 OECD countries – found that the expansion of debt and credit is “associated with lower income growth and greater income risk”.

It is surprising – or maybe not – how few academics have looked at the links between the financialisation of workers’ debts and levels of industrial action. From studies so far, it seems that the more indebted a working class, the less the willingness to resolve issues of pay with industrial action.

Financialisation won’t be the only reason. There has been the onslaught of deindustrialisation and outsourcing, for example. But as the author of the OECD paper points out, it is “an important overlooked missing piece” of what he calls the declining strike activity “puzzle”.

But it is self evident rather than puzzling that loaning money to workers is doubly attractive for capitalism. Not only is it profitable but also a way of trying to repress workers from striking for better pay.

That seems true not just for Britain, but for other countries as well. A paper published in January 2023 (and publicly available), reports strong evidence from the late 1970s across Japan, South Korea, Sweden, the United States and Britain linking financialisation with fewer strikes.

Covid

Covid-19 made matters worse. The Financial Conduct Authority reported in 2021 that the number of adults with “low financial resilience” – over-indebtedness, erratic earnings, low savings – leapt from 10.7 million to 14.2 million during 2020. Over the course of the pandemic a sixth of mortgage holders took up a payment deferral.

Who holds debt? When the House of Commons Library looked at this in June 2025, it found that 84 per cent of the population “had some form of credit or loan”. Much of this is mortgage debt and, of course, student loans. 

Tellingly, even by excluding student loans and people who pay off their credit card bills in full every month, just about half (48 per cent) of the population held credit or a loan. But that number is overwhelmingly concentrated amongst workers in the prime of their employment: fully 60 per cent of those aged 35 to 44, and 58 per cent among those aged 45 to 54.

‘Loaning money to workers is not only profitable but also a way to trying to repress workers from striking for better pay…’

When student loans are included, those in their late 20s and early 30s who started university courses between 2012 and 2022 and are on Plan 2 student loans are heading for a particularly vicious debt disaster. They have been hit with fees of £9,000 a year and interest payments of around RPI plus 3 per cent (the exact figure depends on income after graduation).

The Institute for Fiscal Studies published estimates on 6 February this year showing that the highest-earning half of students who graduated in 2022 are likely to end up repaying around £74,000 (in today’s prices) on loans of £48,000 (in today’s prices) over a 30-year term.

No wonder pressure is mounting on the Chancellor, Rachel Reeves, to remedy the situation. 

Reeves continues to call the student loans system “fair and reasonable” with no hint of understanding that for young workers it is a 30-year debt sentence.

Her decision to freeze the minimum level at which loan repayments start for three years starting from April 2027 has been subjected to a damning analysis by money expert Martin Lewis, who said the decision was “not a moral thing”.

Indeed it is not. But it’s the logical approach of a government wholly committed to dragging the entire population into debt if it can.

In March 2025 household debt was heading towards £2 trillion. By 2030, according to the Office for Budget Responsibility, it could be up at £2.9 trillion. 

To put that into context, current total annual UK GDP is around £2.8 trillion. So Britain could soon be a nation where workers owe more than they produce in a year. 

The working class has traditionally been reluctant to engage with economics. If it is to emerge from the debt debacle, that will have to change.