Four million households stuck in arrears

Four million people in England and Wales are trapped in a negative budget, meaning they simply don’t have enough money coming in to pay for essentials like food, energy or housing, Citizens Advice is warning.

The charity’s latest research shows on top of those in the red, hundreds of thousands more have cut their spending to the bone and have no safety net.

In 2024/25, 320,000 people were just £50 from a negative budget. Based on projections of how living costs will rise, this figure is set to swell to 580,000 in 2025/26. This means just one unexpected shock – such as a rise in food prices, a utility bill increase or rent hike – could push more than half a million people into the red.

Once people are plunged into the red, their situation quickly escalates. In 2024/25, households in a negative budget were in an average deficit of £343 every month – this is set to increase to £396 in 2025/26 as costs rise.

The sobering new analysis demonstrates how years of government inaction on living standards has led to increasing levels of hardship for millions of people. Citizens Advice is calling for the Autumn Budget to be used to provide targeted utility bill support and increase Local Housing Allowance, as well as scrapping the two-child limit on benefits to ease the pressure on families.

Citizens Advice’s figures show that as people lose the battle against rising costs and debts increase, it becomes harder and harder for them to get out of the red.

Debt levels have grown by a quarter (25%) for people in negative budgets compared to the situation pre-pandemic. In comparison, debt levels for people not in a negative budgets have grown by only 11%.

More than half of the people Citizens Advice helps with debt are in a negative budget. Those in a negative budget have average levels of debt of £9,963 per household.

Yvonne Parks, a Debt Team Manager at Citizens Advice South Gloucestershire said “I have been a specialist debt adviser now for 30 years and, although there have always been clients with negative budgets, these were the exception. Now we are seeing around half of all debt clients stuck in the red.

“The other day I helped a nurse who is struggling to make ends meet, even though she is working overtime. Her rent is over half her take-home pay – and that is not unusual.

“I’ve seen it time and time again – missed bills lead to arrears, enforcement, deductions, or credit damage. Stress and poor mental health reduce someone’s ability to manage finances or seek work. People fall into a cycle of crisis, repeatedly needing emergency help such as foodbanks, fuel vouchers or help with housing payments. Debt solutions have become a sticking plaster, not a resolution. Each time I help someone now, I know that it’s likely I’ll be seeing them a year on with further debt, through no fault of their own.”

Some groups in society are more exposed than others to falling into a negative budget. These include private renters make up 30% of those in the red and are 60% more likely to be in a negative budget than the average household. Citizens Advice warns this is a clear indicator of the impact of Local Housing Allowance not keeping pace with real costs. This also includes households with children – particularly single-parent households – are also more likely to be in the red. In 2024/25 there were more than 860,000 children living in households in England and Wales in a negative budget. The charity is calling for the two-child limit and benefit cap to be scrapped to deliver much-needed support for struggling families.

Citizens Advice is calling for targeted utility bill support for those at the sharp end of rising prices, to help with the month in, month out grind of continued high living costs.

Dame Clare Moriarty, Chief Executive of Citizens Advice, said “Four million people have simply run out of options and many others are on the cusp of crisis. They come to us unable to make ends meet, sinking further into the red every month, and desperate to provide for their families.

“This is the result of years of successive government inaction on living standards and policy decisions which have made life even harder for struggling households.

“The Labour government came into office with big promises on living standards that it’s yet to deliver on.

“That’s why it must provide support where it matters by increasing Local Housing Allowance and ending the two-child limit, alongside improving targeted bill support to ensure that rising utility bills don’t push people further into hardship.”