New CASE research funded by the ESRC COLIF Fellowship programme, undertaken by Eleni Karagiannaki in partnership with StepChange maps how area deprivation and ethnicity intersects with household over-indebtedness in London. The results reveal stark divides. Some key findings are: 

Area deprivation and over-indebtedness 

·         London not only exhibits a higher overall rate of over-indebtedness (13%) compared to the UK overall (10%) but it also exhibits great variation: the five most deprived London Boroughs, over-indebtedness jumps to 19%, nearly triple the rate in the five least deprived ones (6%).

·         A similar picture emerges based on the StepChange's 2023 clients’ database: the more deprived an area is, the more adults turn to debt advice services. 

·         The reason why Londoners are falling into over-indebtedness varies greatly but in 2023, the cost-of-living crisis topped the list, driving debt for over 1 in 4 of StepChange’s clients. Unemployment or redundancy followed at 17%, while challenges like lack of control over finances, injury or health issues, and reduced income or benefits were each cited by about 10% of clients. 

·         But area matters: In less deprived areas: life events like divorce/separation, pregnancy/childbirth, and family care responsibilities hit hardest. In more deprived areas: it’s irregular income, reduced income or benefits and one-off expenses pushing more people into debt.

London’s striking ethnic debt divide 

·         Ethnic minorities in London are far more likely to struggle with debt. According to survey data from Understanding Society, over-indebtedness affects 28% of Londoners of Black African, 24% of Black Caribbean, and 22% of Pakistani or Bangladeshi ethnic background—much higher than the 8% among White British groups. Even among Indian groups (16%), the rate is double.

·         Further analysis using StepChange data shows that ethnic minority groups are less likely to use most types of unsecured credit but often end up with higher debt balances. 

·         London boroughs with higher concentrations of ethnic minorities are often marked by greater levels of area deprivation and higher rates of over‑indebtedness. 

·         Differences in socio-economic characteristics help explain why many ethnic groups face higher debt, but with some exceptions: in deprived areas, Black African Londoners still face significantly higher over-indebtedness, even after accounting for these differences.

·         The reasons for over-indebtedness vary significantly by ethnic background with Londoners from ethnic minority background being more likely to cite irregular income, reduced income or benefits, or pressures related to pregnancy or childbirth—while their counterparts from White British background more often reporting separation/divorce, credit reliance to cover living costs, or lack of financial control. 

Policy and practice recommendations 

·         Introducing an enhanced data infrastructure to better understand how those most in need across different areas and ethnic groups access services, and where gaps exist and how to best fill them. 

·         Addressing area deprivation and over-indebtedness risk as over-indebtedness aligns with area deprivation, but its drivers are multifaceted. Effective policies and practice should both prevent debt buildup, support those already struggling by boosting financial resilience and address underlying drivers of poverty and deprivation. 

·         Recognising ethnic disparities as ethnic minority groups face higher over-indebtedness rates, than White Brits, suggesting an “ethnicity premium” in the financial services sector that warrants further exploration. 

·         Mitigating short-term financial shocks: Many StepChange clients - especially from ethnic minority backgrounds - attribute their debt problems to short-term shocks, which points to a lack of financial buffers. Policies should focus on enhancing overall financial stability through emergency savings, better access to low-cost credit, and targeted debt advice services.

Eleni Karagiannaki, Assistant Professorial Research Fellow at LSE, and the report’s author, said:

“The research highlights how area deprivation and ethnicity intersect to shape the complex and uneven landscape of household over-indebtedness in London. One of the most striking and concerning findings is that while financial shocks impact all ethnic groups, they are both more frequent and more damaging among ethnic minority groups and residents in poorer areas, often due to lower levels of financial resilience. The fact that so many households lack even minimal buffers against short-term shocks is alarming. This points to a widespread lack of financial buffers, such as emergency savings or affordable credit access. Tackling this crisis requires targeted, culturally competent debt and financial advice support, as well as policies that build long-term financial stability through fair credit systems, effective and adequate safety nets, and place- and identity-aware interventions.”

Peter Tutton, Director of Policy, Research, and Public Affairs at StepChange, said:

“This research shows how indebtedness in London outstrips the rest of the United Kingdom as cost of living pressures take their toll. It provides crucial insight into the complex and intersecting factors driving over-indebtedness in the capital, particularly the persistent financial challenges faced by ethnic minorities. This underscores that socio-economic characteristics alone cannot fully explain disparities in debt levels. Our client data also shows how people in more deprived areas are more likely to turn to our service for support – as people struggle to manage essential costs. 

“We need to see the Government, through the Financial Inclusion Commission, seek to support people to build financial resilience, and expand the no-interest loans scheme to allow people to manage income shocks, as well as broaden access to crisis support and grant.”

You can read the full report here.