Britons paying off their debts

Borrowing is falling in real terms for the first time in over a decade, new figures show.

The latest report from Alliance & Leicester on consumer debt - looking at borrowing outside of family mortgages - shows borrowing growth is down to 1.4 per cent a year, almost a tenth of the 11.7 per cent level averaged since 1996.

Credit card debts dropped for seven months running from February to August, a record series of falls, and is now at its lowest level since December 2004, at an average of £2,140 per household.

The amount owed in unsecured loans has also been dropping the report shows, down to £6,027 per household on average, with annual growth slowing to 3.1 per cent - the slowest rate for 13 years.

The study also shows wages are rising faster than borrowing, and most borrowers are planning to continue reduce their debts.

Alliance & Leicester's managing director of retail banking, Chris Rhodes, commented: "2006 has been a turning point for the UK consumer. People are now seeing their unsecured borrowing fall relative to their earnings.

"We have not seen consumer borrowing this subdued since the recession of the early 1990s. The good news is that this time the economy is performing well and employment is at an historic high."

However, the report highlights a trend that some groups are continuing increase the amount they owe.

"Although the economy now appears more benign, people on lower incomes in social housing are affected disproportionately by inflationary pressures. The prices of many non discretionary items such as energy have risen fast and these take a bigger bite out of their incomes, even though they do not have mortgages to pay," said Mr Rhodes.

He concluded: "People seem less willing to pay back their debts than in the past. This trend is highest amongst non homeowners. The rapid growth of companies that encourage borrowers into taking our Individual Voluntary Arrangements (IVAs) as a solution to their debts is partly to blame.

"By taking what is being marketed as an easy option, many people are unfortunately not considering the long term consequences. Many of these people will find it harder and more expensive to get credit when they need it in future." XXX