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.
