Cost of living - effects on debt: review of emerging evidence

7. Conclusion

This report has considered the issue of problem debt and how this may have changed as a result of the cost of living crisis. The report has drawn where possible on evidence from Scotland, but also includes data from the UK that has broader relevance. In particular, it has considered the most recent evidence on the types and levels of debt that households are struggling with, the shifting debt landscape and consequences of this for different groups, the characteristics of those experiencing problem debt (with a focus on groups particularly affected by the cost of living crisis) and the changing demands on, and challenges faced by debt services.

At the time of writing, inflation is at 1.7%, but lower inflation does not mean prices are falling – just that they are rising less quickly. In terms of energy prices, despite the fall since early 2023, typical bills under the January to March 2025 price cap will be just over 40% higher than in winter 2021/22.^[376] And so the cost of living crisis continues to negatively affect the financial resilience of many households.^[377] Some of these households have legacy debt built up that they are unable to pay off, or else are in extreme financial fragility and close to falling into debt. Alongside adverse life events and unexpected costs that can push people into debt, households will be concerned about factors such as; further inflationary shocks, interest rate rises and increased debt servicing costs, volatility in the energy market, rising rents and priority bills. All of these can tip those on the edge into problem debt, and further deepen debt levels amongst households already in problem debt. Looking ahead, it will be important to monitor the changing and complex debt landscape and the emerging longer term effects of the cost of living crisis on personal and household debt in Scotland.