Context

In autumn 2010, the Money Advice Trust (MAT) launched a new project focused on statistical analysis of advice demand data to inform the sector about developments in advice demand and the likely future direction of demand for money advice.

The key findings from that project were presented in the first Demand, Capacity and Need report published by MAT in January 2011. An update on developments in advice demand was published in June 2011.

Demand for debt advice among individuals in the UK is sensitive to developments in the macro-economy, most notably movements in unemployment, average earnings and interest rates. Since the June 2011 update the broad prospects for the UK economy have worsened, reflected in downwards revisions to forecast growth and upward revisions to forecast unemployment. This study presents further updates on developments in advice demand plus new forecasts for advice demand volumes from the first quarter of 2012 onwards.

The study

The study evaluates the success of the model developed in 2011 for the UK, examines regional drivers of demand and examines why people who need advice do not seek it. It presents an analysis of how the worsening outlook for the UK economy in official forecasts is likely to impact upon the level of demand for money advice.

It presents information on recent trends in advice demand in the UK and forecasts future demand based on OBR projections. It compares forecasts for money advice presented in the previous year’s report to actual outturns. It documents regional variation in trends in advice volumes and constructs a regional level forecasting model.

It presents individual level survey data from the YouGov Debt Track survey alongsideanalysis to better understand why individuals have not chosen to seek money advice, even though their description of their financial position suggests they have problem debts.

Key findings

• In 2011 approximately 2.6 million individuals in the United Kingdom sought money advice relating to their debts and credit commitments, an increase of 9.8% on a year earlier. Free advice agencies continued to be the most popular source of money advice, with approximately 1.46 million individuals contacting a free advice provider for money advice in 2011.
• There is considerable regional variation in levels of demand. The largest numbers of individuals seeking money advice relating to debts live in London and the South East; however relative to population sizes and coverage of indebtedness/problem debt, advice seeking is most prevalent in Northern Ireland, the East Midlands and the South West. The proportion of individuals in arrears seeking money advice in these regions is between two and three times larger than the proportion in Scotland, the North East and the South East.
• Analysis suggests regions in which a larger proportion of the population of indebted households seek advice typically have lower rates of personal insolvency (line of best fit R-squared value=0.5809)
• Household survey evidence shows that approximately 20% of households exhibit moderate difficulties meeting their credit commitments and 5% of households exhibit severe difficulties and serious problems with consumer credit arrears.
• Households with more severe debt problems are more likely to seek advice, though even among the group with most severe debt problems only half of households have sought professional advice. The main reasons for not seeking advice are the perception that it is not required and procrastination on the part of the household. Very few households chose not to seek advice due to the perception that previous advice received was of low quality or that advice was not deemed to be useful.
• The level of money advice demand in the UK in 2011 was very close to that forecast in the first Demand, Capacity and Need report published in 2010. Central forecasts see money advice growing across all regions by at least 10% by 2014/15.
• The central forecast scenario sees strongest growth in money advice demand in those regions most likely to be negatively impacted by reductions in public sector employment, notably Northern Ireland, the North East, Wales and Yorkshire and Humber. However, money advice demand is forecast to increase in all regions.

Points to consider

• Analysis is based on client volumes (measures of the number of clients receiving advice) and not overall demand levels (which include potential clients whose advice demand could not be served).
  • Forecasts are subject to uncertainty arising from the accuracy of the forecast model and the accuracy of the underlying projections for the UK regions used as inputs into the forecast. The degree of uncertainty around these central projections at the regional level is generally higher than that for the UK level forecast. Forecasts for the unemployment rate among independent economists are stated as more pessimistic than the OBR’s central projection, which would impact the results from the forecasting model.
  • Regional forecasting involves more complexities and judgements compared with forecasting at the national level and this in part necessitates a shorter forecast horizon of two years.
• Forecasts will now be out of date but general findings on regional variation and reasons for not seeking advice likely to remain relevant.

Full report

Demand, capacity and need for debt advice in the United Kingdom 2012 - full report