Private debt is this government’s public injustice

by Stella Creasy

When David Cameron proclaimed failure to deal with the deficit would cost us all, he didn’t outline the true price of his austerity programme. Now with stubborn inflation, the VAT hike and pay freezes shrinking wage packets we can see consumers are the ones picking up the tab.

Whilst public debt is down by £43bn, private household debt is up by £245bn – five times as much. With the cuts planned in public spending the only way the government will see improvement in the office for budget responsibility’s forecasts for growth is if this ratio increases. The impact of this shift on the potential for economic recovery and the family fortunes of millions is substantial. And as people struggle to make ends meet, access to affordable credit – and its ugly sister, exorbitant debt – is fast becoming the new inequality in modern Britain.

The British have always had a different approach to personal debt than many other countries – we are a nation comfortable with borrowing in ways at which other cultures baulk. It is no surprise that we have the highest level of personal debt in any G7 country. This in itself isn’t a problem if it can be managed – much of the money owed is housing-related and reflects a culture in which mortgages are routine.

However for many, financial liabilities have recently taken a more worrying turn. Since the recession, nearly a third of Britons are spending more than they have coming in each month. Over four in ten people are now worried about their current level of debt, with four million fearing redundancy and four million having taken on more debt in recent months. 22% of consumers will carry a credit card debt throughout 2011 – with 7% saying they will still be paying for Christmas 2010 after June 2011.

The debts the public are getting into are not about luxuries but the everyday. Recent research shows more than two million people have used credit cards to pay their mortgage or rent, an increase of almost 50% in a year.

Access to money to pay for food and shelter is drying up for many – it is estimated five million people are now permanently overdrawn and eighteen million people have gone into the red at some point in the last twelve months. Nearly eight million of us failed to pay at least one bill over the last year. And it’s not just the poorest consumers in our society who are suffering. According to Experian, “suburban mindsets” – married, middle-aged consumer groups – represent the biggest rise in insolvencies in 2010. This compares to previous evidence that it was mainly an indication of disadvantaged groups.

All the signs point to the fact that pressures on consumers are going to get worse – and that the government is responsible. Credit Action says that of the forty five changes to the tax and benefit system made in the budget, twenty six will have a negative impact leaving households £200 worse off.

As Ed Balls has pointed out, cuts to childcare support will take over £1,500 a year from families alone. At the very time when consumer confidence is desperately needed to pump up withering high-streets, families are finding shopping too expensive and their purses empty.

Loading debt on to households helps the government cut the deficit at the pace they desire, but Labour must challenge them on the costs and consequences to all of doing so. And in an economy where jobs and growth are in short supply, debts like these don’t just mean lower consumer spending, higher levels of bankruptcy or repossessions. 29% of British parents admit they are arguing over their family’s finances, and a third of parents are suffering the stress of sleepless nights because they are worried about money.

There’s another danger lurking too. To cover costs, more and more are turning to sources of credit which may seem like short-term solutions but quickly become long-term problems. People who say they are likely to use an unauthorised overdraft this month has nearly doubled since July last year, from 900,000 to 1.6 million. So too, the payday lending industry in the UK with its 4,000% interest rates has quadrupled in the last 18 months.

Being able to borrow in a way which doesn’t leave a long-term scar on your family finances is the new dividing line within society. Those who can access mainstream credit may scrape by in austerity Britain. Those with little option but legal loan sharks, maxing out their credit cards or racking up unauthorised debts could spend a generation or more trying to become debt free.

Getting more people into paid work, reducing inflationary pressures and recognising the costs of living in the tax and benefits system could ease the difficulties many families are facing. So too would practical steps to improve the affordability of credit. Yet despite overwhelming support from a wide range of consumer bodies, campaign organisations and community groups, such proposals have so far been ignored by ministers.

This government wants to pretend personal debt is solely a private matter, but the social and economic consequences beg to differ. Lack of regulation in comparison to other countries allows the high-cost credit industry to go unchecked in the UK. Recognition of the problems caused by casino banking practices in the city is widespread – but this is only half the battle. We should not forget the financial needs of those in our communities too.

Credit should not be lent in a way that is detrimental to consumers without those that profit from exploiting them being made liable for the consequences. In the forthcoming finance bill I will table amendments to review whether corporation tax or the bankers’ levy could be applied in a way which would disincentivise this behaviour. Please ask your MP to co-sign these proposals. It’s time this government put the fortunes of every family first.

Stella Creasy is Labour and Co-Operative MP for Walthamstow.

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7 Responses to “Private debt is this government’s public injustice”

  1. Seymour says:

    So, somehow, people racking up personnel debts is the goverments fault?

    If I recall, it was a previous government that told people to spend and borrow, no boom and bust they claimed. Well the boom has gone bust, so perhaps people may have to cut their spending a little.

    Anyone who was foolish enough to believe labour and wasn’t earning over 40,000/year will have a rough time. Bills have to be paid and some discertionary items (holidays, 50″ TVs etc) may have to be put off for another day. Chickens coming home to roost.

    Yes, it is sad for those who thought they could always live on the never never but, in the long run, if people don’t rack up large debts and pay off their existing ones the economy will be the better for it.

    Being one of those sad people who didn’t borrow and pays cash on the barrel head (I save up for the big ticket items or just don’t buy them) I see no reason why I should have more state debt to pay to mitigate others over spending.

  2. Iain Ker says:

    Yes personal debt has blown out in the past 15 years

    Yes the Bank of England and the government should have prevented this

    No you can’t sustain an economy on debt-fuelled consumer spending.

    Shame it took you so long to realise this. And you’re tying yourself in knots trying to spin this as the fault of the present government.

    Mind you, some halfwit’ll be along in a minute saying it’s all the fault of ‘Fatcha’.

  3. theProle says:

    Strictly speaking, it’s not the governments fault – it’s the idiots on the MPC who are letting inflation rip which is driving the main wage squeeze on people’s finances.

    That said, the reason the MPC get away with this is the government isn’t minded to do much about inflation – it reduces the value of the national debt. In practice that reduction in the national debt is paid for by everyone, particularly those with savings.

    All this said, for the over-mortgaged, they are dammed either way. If interest rates stay low, inflation takes off and they pay through the noise for it. If interest rates get raised, then they can’t afford their mortgage. Sooner or later they will default either way. As another commenter has already said – chickens coming home to roost.

    All this said, if I can’t afford the current cost of living, I cut back on what I spend. I’ve not got a lot of sympathy for fools who borrow money without a clear plan for paying it back – you have to be really stupid if you can’t work out what is going to happen if you do that…

  4. AmberStar says:

    @ Stella Creasy

    Prevent the lenders from turning unsecured debt into secured debt, if you can. ‘Forcing’ people to turn their unsecured debt into secured debt is what stops these lenders from having to take the consequences of over-selling credit.

    Don’t let the ‘legal’ loan sharks take people’s homes!

  5. Perhaps everyone that took on that debt should have thought about the ramifications before they took it on? Throughout the past several decades I watched as my neighbors took vacations on credit, flipped houses and used the proceeds for cars and other “consumables”. I knew this day was coming, but never in a million years would have believed that people like you would feel sorry for the irresponsible parasites that have brought our country to its knees. The bottom line is to prevent this future behavior, those who borrowed should have to repay—-those who made risky bets should have to pay—-those who were responsible should be rewarded. How can anyone in good conscious believe any different? Is our that country so morally bankrupt that people actually believe the parasites should be rewarded at the expense of the responsible? IF that is the case, there truly is no hope for this country.

  6. Maybe International Women’s Day is a good opportunity to talk about women. But problems this article is about touch not only women, they touch different people, men, women, single, married all over the world. A huge amount of people all over the world are struggling against poverty every day of their life. Money that people get working on their jobs are not enough to make ends meet, especially if we talk about families. If you are single it’s easier to find a way to survive, but if you have a child than you are responsible for your baby and you should think of your child at first. That is why people take out loans. It’s no matter if you’re a man or woman, the question “Where should I get money to survive?” is asked by different people all over the world.

  7. Steve Day says:

    Unfortunately some people are to quick to blame others for their own actions and to many people think that this type of borrowing is the answer when in reality decent jobs with a living wage will assist many.

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