National debt charity Consumer Credit Counselling Service is warning that rising unemployment and high inflation will lead to a sharp rise in personal debt problems over the next few years.

CCCS is concerned about the Office for Budget Responsibility's revised prediction for peak unemployment, inflation and household debt over the next few years.

The charity says that unemployment is a major factor in personal debt problems with almost half of the people it counselled last year citing unemployment or reduced income as the reason for their debt problem. It is therefore very worried that the OBR revised its forecast for unemployment in 2011 upwards to 8.2%.

CCCS also points to the OBR's amendment to its inflation assumption up 1.1% and 0.6% for 2011 and 2012 respectively. It says that household budgets are already under pressure and that, on average, CCCS clients had only £43 a month disposable income to repay over £22,000 in unsecured debt.

CCCS says that this will be compounded by the OBR prediction of rising household debt over the next five years. Last August, the OBR said that household debt would decrease as a percentage of household income over the next five years, but it now says it expects it to increase. The OBR now expects debt as percentage of household income to rise from 160% in 2011 to 175% in 2015.

Commenting, Delroy Corinaldi, CCCS external affairs director, said: "The OBR forecast spells disaster for thousands of UK consumers and the next few years will see a significant rise in the number of people in need of financial help and advice. We urge anybody struggling with debt to contact a debt charity such as CCCS for free counselling and support."

"CCCS not only has capacity in its telephone service, currently operating at 65% of potential, but has virtually unlimited capacity 24/7 through its online service, CCCS Debt Remedy. The over-indebted should ignore misleading claims from the for-profits that they are the only alternative." For more information about UK solutions and to find out about debt relief orders that are intend to help people with low incomes avoid bankruptcy go to the www.debtadvisoryhelpline.co.uk website

March 2011 UK Chancellors Budget

The amount people can earn before paying tax will be increased by around £600 from April next year, Chancellor George Osborne will announce today.

Tax allowance

Chancellor George Osborne is to increase the personal income tax allowance to give 25 million people a cut of around £45 a year in Wednesday's Budget.

First-time buyers

The Budget will also include a £250m package designed to help 10,000 first-time buyers to purchase a newly built flat or house. The buyer would have to put up 5% of the cost, while the government and home builder would both put up 10%.

Taxes

The Chancellor will also announce plans to lift 250,000 low earners out of paying income tax and pledge that no one earning less than £42,000 will be pushed into the higher tax band before 2015.

Pensions

A flat-rate state pension of £140 could be confirmed in the Budget, ending means-testing and signalling a significant victory for Iain Duncan Smith, the Secretary of State for Work and Pensions.

Enterprise Investment Schemes

The rules are likely to be loosened to make it easier for seed investors to back small companies by improving income tax and capital gains tax relief.

Capital Gains Tax

CGT principle private residence relief, intended to stop you having to pay a hefty CGT bill when you sell your home, is seen as too complex and ripe for simplification.

Income tax

Axing the 50p income tax rate would be politically impossible now, but business groups are hoping for a signal that the long-term plan is to ditch the top rate. They shouldn't hold their breath, though the Chancellor is expected to reiterate that it is only temporary.

Pay and pensions

Public sector workers on more than £21,000 have had their pay frozen for two years and are being asked to increase their pension contributions. The Hutton Report on public sector pensions recommended further reforms, such as moving from a final salary to a career average pension scheme, but they are unlikely to be introduced in this Budget.

Economy

Expect the Office for Budget Responsibility to downgrade its growth forecasts for this year from 2.1% to about 1.6%.

Public finances

The Chancellor will probably beat his borrowing forecast in 2010/11 of £148bn by about £5bn, allowing him a little room for generosity.

Taxes

Of great political interest will be the so-called "Learjet tax", but a more important review of the status and liabilities of non-doms may also be launched.

The government may increase further the amount individuals can earn before paying any income tax. Having pushed it from £6,475 to £7,475 he may raise it again to £8,000, but this time without "clawing back" the benefit from people further up the income scale.

Merging Tax and National Insurance

An impossible task in one Budget or even 10, but another review with the aim of merging them is likely to be welcomed.

According to a UK charity CCCS, job losses and reduced income from work in the UK is leaving more households struggling to pay their debts, with the problem only looking to increase over the months ahead.

The Consumer Credit Counselling Service (CCCS) reports that the majority of households are faced with either falling incomes or incomes remaining fixed and the cost of living is increasing rapidly and those suffering with high levels of debt are on the edge of financial ruin.

The charity has warned that families were particularly vulnerable, with those that have dependent children needing an additional £650 a month just to cover everyday living costs compared to those without.

Families with more than three children faced an average £45 per month shortfall in money that they need simply to make ends meet.

The charity went on to say that "Changes in higher rate tax thresholds and the lowering of eligibility for tax credits is likely to spread the pain to middle income families, many of whom will also be hit hard as interest rates start to increase.

Around 55% of people who contacted the group last year said that they received some type of benefit or tax credit, with these accounting for a third of their household income.

CCCS also revealed that on average a homeowner has over £30,000 in unsecured debt on top of their mortgage. It warned that a 2% rise in interest rates would lead to a £307 increase in monthly mortgage payments for clients across the country.

CCCS chairman Lord Stevenson said: “The picture is undoubtedly bleak and it seems likely that many more families, including better-off ones, will be increasingly prone to over-indebtedness in the months ahead.

“It is also not a uniform picture across the country: public sector cuts in terms of jobs, spending and benefits will weigh disproportionately on certain groups of people.”

Last year CCCS dealt with 418,000 enquiries to help people with their debt problems. Around 55% of clients cited job loss or income as a reason for their debts, while a third lacked the means to cover basic living costs.

Help for people is available from many organisations within the UK, the Debt Advisory Helpline provides access to confidential free debt advise and you will find a free debt calculator on their website, which helps to itemise your financial situation in a budget format and identifies if you need to seek the help of a UK Debt Counsellor.