The head of Britain’s financial regulator has warned that a growing number of young people are having to borrow to cover basic living costs.

Andrew Bailey, the chief executive of the Financial Conduct Authority, told the BBC that while it had not yet reached crisis levels, it was worrying that debt among young people was growing. He talked about a shift in the generational pattern of wealth and income.

“There is a pronounced buildup of indebtedness amongst the younger age group,” Bailey said. “We should not think this is reckless borrowing. This is directed at essential living costs. It is not credit in the classic sense, it is [about] the affordability of basic living in many cases.”

The number of 18- to 34-year-olds becoming insolvent jumped by nearly a third (31.3%) between 2015 and 2016, according to the Insolvency Service. Seaside towns in England and Wales have the worst levels of debt among young adults in the UK, led by the Isle of Wight, Torbay and Scarborough.

The Liberal Democrat leader, Vince Cable, said: “The under-40s, in particular, are suffering financial hardship because of the worrying accumulation of debt in the UK. The Conservatives have forgotten about their manifesto pledge to create a ‘breathing space’ scheme so that people in serious difficulties can have legal protection from interest, charges and bailiffs for six weeks. For the head of the FCA to make this intervention shows how urgently this must be introduced.”

Bailey added: “There are particular concentrations [of debt] in society, and those concentrations are particularly exposed to some of the forms and practices of high-cost debt which we are currently looking at very closely because there are things in there that we don’t like.”

He said he would like to see “more focus on what is sustainable, affordable credit provision”, with action being taken to reduce long-term credit card debt and high-cost payday loans.

The regulator is also scrutinising the rent-to-own sector, which can charge high levels of interest for white goods such as washing machines, he said.

The FCA’s clampdown on payday lenders, with a cap on charges introduced in 2015, severely curtailed the market and meant that there were fewer than 1 million people using payday lenders, compared with 10 million previously, said Kit Malthouse, a member of the treasury select committee. “It’s a question of where those people go,” he told BBC Radio 4 on Monday.

Unsecured household debt in Britain, which includes credit cards, overdrafts and car loans, recently topped £200bn for the first time since the financial crisis, up 10% in the past year.

Bailey said: “There has been a clear shift in the generational pattern of wealth and income, and that translates into a greater indebtedness at a younger age. That reflects lower levels of real income, lower levels of asset ownership. There are quite different generational experiences.”



The shadow economic secretary to the Treasury, Jonathan Reynolds, said: “There is a lot of human tragedy in these stories … People have no choice but to get into debt.” Labour has proposed a cap on credit card interest charges, which means people would have to pay back no more than twice the amount of their borrowings.

Joanna Elson, the chief executive of the Money Advice Trust, the charity that runs National Debtline, said: “Andrew Bailey is absolutely right to highlight the growing debt burden on young people – often to meet basic livings costs.

“While this trend may not yet be considered a risk, on its own, to the economy as a whole, debt problems at such an early age can have a huge impact on the individuals involved. Debt advice can make all the difference, but worryingly, far too few young people are seeking advice when they fall into difficulty.”

The charity’s Borrowed Years report found that 37% of 18- to 24-year-olds are already in debt, owing an average of £2,989 – excluding student loans and mortgages. About half say they regularly worry about money and one in five sometimes cannot sleep as a result.

Hannah Maundrell, the editor-in-chief of money.co.uk, said people should check their bank account daily, the interest rates they are paying once a month and shop around for cheaper options unless they are locked into a contract. They can cut the cost of interest by doing a balance transfer or use savings to pay down their balance, move from standard energy tariffs to cheaper fixed rates and should always compare insurance policies before renewing, she advised.