Consumers in the UK are focusing on paying off their debts rather than saving, according to new research.

The Markit UK Household Finance Index found that UK residents were choosing to pay off their current debts rather than lock their cash away in savings and ISAs, except those earning more than £57,571.

Low interest rates, as well as the prospect of large scale job losses in the public sector, increases in VAT and rising inflation, has led a wider focus on debt reduction.

The Office of Fair Trading has warned consumers to stay clear of firms claiming to use a legal loophole to clear debts.

Following an increase in the number of companies claiming to utilise a so-called debt write-off loophole that could render a borrower’s unsecured debts unenforceable, the OFT has published a consumer guide warning consumers.

According to the OFT, companies claiming to help people exploit such a loophole can charge hundreds of pounds in administration fees , even though a judge has found that the loophole does not exist in UK law.

As many as 1.4million people are set to receive a letter from HMRC claiming that they have underpaid tax over the past two years, owing an average of £1,500 each.

About £2bn was underpaid through the PAYE (pay as you earn) system over the past two financial years, with 1.4m people now set to receive demands for the underpaid sum from Her Majesty’s Customs and Revenue.

In addition, around 4.3m have been found to have overpaid tax over the same period, resulting in tax refunds totalling £1.8bn, or £418 on average per person.

Banks and building societies were writing off almost £40m per day in family debts in the second quarter of the year, according to new figures.

A report from the Bank of England found that lenders wrote off as much as £3.5bn of debt between April and June, equivalent to £38.5million per day, the largest amount on record for a single quarter.

Consumer confidence has increased for the first time since February, according to one report, raising hopes that High Street spending could help the UK avoid a ‘double-dip’ recession.

Market research firm GfK NOP said its consumer confidence barometer - which analyses retail patterns to produce an index of shoppers' optimism - increased by four points in August to minus 18, the first increase since the second month of the year.