The Cost-of-Living Crisis and Rising Debt in Scotland
The cost-of-living crisis in Scotland has brought household finances into sharp focus, revealing significant shifts in the debt landscape. With inflation surging and incomes struggling to keep pace, many households find themselves in precarious financial situations. This article delves into the emerging evidence surrounding the crisis, exploring its effects on various forms of debt, the people most affected, and the changing demands on debt advice services.
To understand the magnitude of the current crisis, we must first examine its origins. Beginning in late 2021, inflation surged, driven by global disruptions such as the pandemic and geopolitical tensions. These forces pushed up prices for essentials, from energy to food, at a pace far outstripping income growth. By 2024, inflation had moderated to around 2%, but the damage was done. For many Scottish households, the financial scars remain deep.
Debt, a common feature of modern life, became an essential lifeline for numerous families navigating the crisis. Yet, not all debt is created equal. While it can offer short-term solutions, the burden of unmanageable debt—where repayments become overwhelming—can lead to severe consequences for individuals and communities.
Energy debt has emerged as a prominent issue. Despite recent declines in wholesale energy prices, many households are still grappling with arrears built up during the peak of the crisis. In autumn 2023, Ofgem reported record energy debts of £2.6 billion across Great Britain (Ofgem Energy Debt Report, 2023) . For Scottish households, the average energy debt brought to Citizens Advice Scotland was £2,300, soaring to £3,000 in rural areas (Citizens Advice Scotland Statistics, 2023) . Such debts have left families choosing between heating their homes and affording basic necessities.
StepChange Scotland revealed that between 2022 and 2023, the average dual-fuel energy debt increased from £1,623 to £1,960, while electricity arrears rose from £1,438 to £1,886 (StepChange Scotland Annual Report, 2023) . Moreover, 50% of new StepChange clients in Scotland reported dual-fuel energy arrears, an increase from 46% in 2022.
Debts owed to public bodies, such as council tax and rent arrears, have also ballooned. Council tax arrears remain a persistent issue, exacerbated by punitive collection practices. Local authorities in Scotland have 20 years to enforce unpaid council tax, significantly longer than the six-year limit in England and Wales (Scottish Government Council Tax Statistics, 2022) . This extended recovery period often traps households in cycles of financial strain.
The latest Council Tax Collection Statistics for Scotland (2022) indicate that £2.607 billion of council tax was collected out of the total billed £2.723 billion, achieving a collection rate of 95.7% (Scottish Government Council Tax Statistics, 2022) . However, arrears remain significant. Citizens Advice reported that the average council tax arrears among their clients increased by 36% since before the pandemic, reaching £2,075 in 2024 (Citizens Advice Scotland Statistics, 2024) .
Benefit overpayments and Universal Credit (UC) advance repayments add another layer to the debt crisis. The children’s charity Aberlour found that 55% of low-income families with children on UC in Scotland had at least one deduction from their benefits to repay public debts, with 27% experiencing multiple deductions (Aberlour Report, 2024) . Trussell Trust’s 2024 survey found that 85% of UC claimants with deductions had gone without essentials in the past six months (Trussell Trust Report, 2024) .
Rising housing costs have hit renters particularly hard. Private renters, in particular, face the highest housing cost-to-income ratios, with average rents for two-bedroom properties rising by 6.2% in 2024 to £839 (Scottish Government Housing Analysis, 2024) . Despite this, households have been prioritising rent payments over other obligations. The Financial Lives survey revealed that only 7% of renters missed rent payments in the six months to January 2024, even as 26% struggled with other bills (FCA Financial Lives Survey, 2024) .
The latest StepChange Scotland data showed that while 22% of clients had rent arrears in 2023, this was still lower than the 27% recorded in 2019. Average rent arrears, however, remained significant at £1,458 (StepChange Scotland Annual Report, 2023) .
Consumer credit has long been a financial safety net for many households, but its accessibility has dwindled. Tightened lending criteria and rising interest rates have left lower-income families relying on more expensive forms of credit. The FCA’s 2024 Financial Lives survey reported that 65% of adults with household incomes under £15,000 struggled to cope financially, down from 2023’s 70%, yet they still faced high barriers to accessing credit (FCA Financial Lives Survey, 2024) .
While credit card borrowing remains common, with 28% of Scottish adults using it in 2024, high-cost credit options like Buy Now Pay Later (BNPL) have surged. BNPL usage among adults ‘managing less well financially’ reached 42% in 2024 (Fair4All Finance Report, 2024) .
As formal credit options shrink, many households are turning to friends and family for financial support. Citizens Advice Scotland reported that the proportion of clients borrowing informally rose from 14% to 16% between 2022 and 2023 (Citizens Advice Scotland Statistics, 2024) . However, this reliance is not without risks, as social networks themselves are under strain.
Illegal lending has also increased. Fair4All Finance estimated in 2024 that 16% of those declined for regulated credit had resorted to illegal money lenders (Fair4All Finance Report, 2024) . Victims face exploitation, with some reporting threats of violence or harm.
Debt is not just a financial issue; it is a deeply human one, affecting mental and physical health. Research underscores the toll of problem debt, with links to anxiety, depression, and even physical ailments. Priority debts, such as energy and council tax arrears, are particularly harmful due to the severe consequences of non-payment. Public debt recovery practices, often harsher than those in the private sector, exacerbate the stress for vulnerable individuals.
Consumer Scotland’s Energy Affordability Tracker revealed that 31% of those in energy debt reported severe impacts on their physical health, while 45% cited significant effects on their mental health (Consumer Scotland Energy Tracker, 2024) . These figures underscore the urgent need for more compassionate approaches to debt recovery.
Women, single-person households, and even those in full-time employment are among the groups most affected. Evidence indicates a troubling rise in problem debt among women, likely tied to their disproportionate caregiving responsibilities and employment in lower-paid roles.
Debt advice services have seen a surge in demand as households seek help navigating their financial woes. StepChange Debt Charity Scotland and Citizens Advice Scotland report an increase in clients with complex debt portfolios and deficit budgets, where monthly income falls short of essential outgoings. StepChange data shows that the average debt per client in Scotland rose to £6,000 in 2023, with energy and council tax debts making up significant portions (StepChange Scotland Annual Report, 2023) .
The cost-of-living crisis has laid bare the vulnerabilities in Scotland’s financial safety nets. Addressing the root causes of problem debt requires a multi-pronged approach:
Regulatory Reforms: Public debt collection practices need to align with consumer credit regulations to ensure fair treatment and prevent undue hardship.
Access to Affordable Credit: Expanding access to regulated, low-cost credit can reduce reliance on high-cost or illegal lending.
Enhanced Support Services: Strengthening debt advice services and providing targeted support for vulnerable groups can mitigate the crisis’s worst effects.
Policy Interventions: Policies that address the cost of essentials, such as energy and housing, can ease the financial burden on low-income households.
The lessons from this crisis extend beyond Scotland, offering a stark reminder of the need for proactive measures to build financial resilience. The figures reveal not just economic pressures but the human costs of debt—strained relationships, lost opportunities, and health challenges. By addressing the systemic challenges exposed by the cost-of-living crisis, we can chart a path towards a more equitable and secure future for all.
