Britain faces debt crisis as advice charities warn of busiest Christmas in years

Regulators would do well to review rules on how lenders deal with distressed borrowers, particularly if the economy takes a hit from Brexit

Debt charities are being inundated with calls from distressed borrowers (Rex Features)

With retailers preparing to reveal who won Christmas, the Money Advice Trust (MAT) has taken the opportunity of a quiet-ish corporate news day to highlighted the plight of the losers.

No, I don’t mean the chains which undershot analysts’ expectations and are now furiously discounting in an attempt to offload their excess stock. I mean the shoppers who, caught up in the pre Christmas frenzy, with all its special offers and Black Friday deals, over spent. The people for whom the new year will be anything but happy as they try to work out how to pay for everything they bought.

According to the MAT some 5.5m Britons are likely to fall behind with their finances this new year. Only a third have a budget, and perilously few have anything resembling a plan to repay debts that doesn’t involve more debt.

The charity is expecting its busiest January in years. During December the National Debtline and its sister service, Business Debtline, took an average of 715 calls a day. More than 40,000 people were helped online making it the busiest Christmas in four years.

The MAT is advising people to set a budget now, to open all their bank statements on the day they arrive, and to seek free advice quickly if things look dicey. All eminently sensible. But the fact is, there are an awful lot of people who will choose not to heed it.

They will instead put dealing with their situations off, and then put it off again. Maybe that scratch card will pay off in the meantime. Perhaps Auntie Nellie will have left more than anyone could have dreamed in her will. Perhaps an unexpected heirloom will be found in the attic. Putting things off in the hope that something turns up is easier than facing up to a harsh reality and you can't really blame people for doing so. It's human nature.

The British consumer has proved remarkably resilient in recent months, doing much to sustain the British economy through a difficult period. A lot of that resilience, however, has been fuelled by debt and debt has to be repaid.

About the best that the MAT, and other charities dealing with people struggling to do that, can do is to keep saying “call us” and “call us soon” because for most people that scratch card won’t come good.

There is also, however, a role that regulators can play. The rules covering how lenders treat distressed borrowers have been tightened in recent years. Some of the more sensible lenders have also recognised that calling in the heavy mob isn’t generally the best way of getting their money back. Working with borrowers on payment plans can pay dividends to all concerned.

Now would be as good a time as any to review the current framework and assess whether it is fit for purpose.

If the Brexiteers are right, and Britain continues to show resilience in the wake of Article 50 of the Lisbon Treaty being triggered, then there will be no harm in doing the work anyway. If they are wrong, and the warnings of Jeremiahs such as myself prove justified, well, there will be a lot of people who have cause to be thankful if the watchdogs heed my advice. There are a large number of heavily indebted households in Britain. They won’t find it easy to weather an economic storm.