1 in 5 have less than £100 in savings as debt crisis deepens

ONE in five adults have less than £100 in savings, according to a landmark study which highlights the scale of Britain’s debt crisis.

The stark figures – revealed in a report by the National Audit Office – suggest millions of families are just one unexpected bill away from plunging into debt.

And they will raise concerns the country’s savings culture has been destroyed by a decade of ultra-low interest rates which saw savers’ returns fall far below inflation.

It came as former Bank of England governor Mervyn King warned the savings disaster is the greatest economic challenge facing Britain today.

Lord King, himself responsible for slashing interest rates to 0.5 per cent during the financial crisis, said: ‘The biggest economic problems facing the UK are we save too little, we haven’t worked out how to save for retirement, the pension system is facing a real challenge, we haven’t worked out how to save enough for the NHS … and we haven’t worked out how we’re going to save enough to provide care for the elderly.’

The NAO findings show that 8.3million adults are stuck with problem debt – meaning they do not have enough money to pay back what they owe on loans or bills.

Problem debt costs the economy £900million a year, the report said.

Baroness Ros Altmann, a former pensions minister, said: ‘Having little or no savings may force [people] into the hands of loan sharks or high cost emergency loans, and that can lead to a negative spiral of debt.’

Debt charity Stepchange said its own research showed that if every household in Britain had £1,000 stashed away in savings, this safety net would cut the number of people battling problem debt by 500,000.

The NAO said the Treasury should work with others to improve the quality of information available on the scale, nature and impact of debt.

In July the Office for National Statistics revealed that households are spending more than they earn for the first time in 30 years. The average family went £900 in the red last year, plugging the gap by raiding savings or taking on debt.