How Osborne’s recovery really looks: graduates with £50,000 debt before they’ve left education

The spike in personal debt is a reminder the economy is built on the indebtedness of large swathes of the population

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The words ‘back to pre-crisis levels’ will feature quite heavily in the run-up to the next election, thanks to analysis by the Institute for Fiscal Studies that says median household income levels for 2014/15 will match levels not seen since 2007. But George Osborne probably won’t want to tell us that household debt levels have also returned to pre-crisis levels.

Of course Osborne can rightly be accused of obscuring the facts anyway. According to the IFS, the recovery in living standards has been slower than the period following previous recession. The amount of lost time and lost money in the delayed recovery should matter every bit as much when we come to decide who we want in charge come the next election.

Delayed recoveries and their real impact on households might explain the return to pre-crisis household debt levels. In a new report out today, PricewaterhouseCoopers (PwC) show that unsecured debt (such as credit cards and personal loans) is making an intense return, rising by nine per cent in 2014 to £239bn, or close to £9,000 per household – an all-time high.

While personal debt and borrowing have stayed at consistent highs over the recession and recovery periods, only now is it spiking back up to 2008 levels, to the extent where PwC anticipates that by 2016 unsecured debt levels will reach nearly £10,000 per household in the UK.

This reinforces a point I’ve made many times: that to a large extent the economy is built on the indebtedness of large swathes of the population. But even in the so-called ‘recovery’ phase many households, particularly those on low incomes, will be experiencing a bad recession hangover – where the only option to get back on track is to take on more debts. And we are only seeing the beginnings of this.

What’s interesting is that student debts are driving up the figures in large part. Of the £19.7bn increase in unsecured borrowing in 2014, £9.1bn (which accounts for around 46 per cent of the increase) came from student borrowing.

While we can expect the same tired response to these figures by the usual crowd who support high fees for students and justify saddling people with more forms of debt before they’ve even left education, we might remember how risky it is to oblige graduates who started university after 2012 to take on average debts of £40,000-£50,000.

Other debts are more typical. £4.2bn (around 22 per cent of the increase) came from credit cards, and £6.4bn (around 32 per cent of the increase) came from other sources such as personal loans and overdrafts.

The real scare story is what is yet to come. Knowing that UK households are extremely vulnerable to interest rates rises, PwC have worked out using their own analysis that a two per cent rise in interest rates would leave households needing to find an extra £1,000 a year just to cover the additional interest costs.

Economist Ann Pettifor, who spoke at the From Recovery to Discovery event last week, pointed out the risk that interest rate rises would have on the vast majority of mortgage holders in the UK.

Some 70 per cent of UK mortgages are variable rate mortgages, compared to 20 per cent in the US, meaning that when a rise in interest rates occurs a great deal of people will begin to feel a very large pinch. Again, not something that George Osborne would talk about when discussing the UK recovery.

Back in February the Trades Union Congress (TUC) analysed data from the Office for Budget Responsibility to find unsecured household debt forecast to grow 4.5 times as fast as wages.

By this reckoning unsecured debt will reach an average of around £29,000 per household by 2019. That is to say, if the stewardship of the economy carries on after the election in the same way George Osborne has so far managed it, then the debts of UK households will grow to unprecedented levels. PwC analysis today shows we are well on the way to this point.

Thank goodness then, I suppose, that we have an option in 45 days’ time to get rid of the current chancellor of the exchequer.

Carl Packman is a contributing editor to Left Foot Forward and the author of Loansharks: The rise and rise of payday lending

25 Responses to “How Osborne’s recovery really looks: graduates with £50,000 debt before they’ve left education”

  1. Leon Wolfeson

    Again, what would Labour do differently? And don’t mention the proposed 6k fees, which most students still won’t pay off, but will pay for 30 years (ending up paying far more than their origional debt…) – and of course, Universities would have to slash their teaching provision drastically there, so…

  2. ed

    But if Labour get in, on all reckoning this will get worse! They will borrow more, spend more, invest less . . .

  3. Millsy

    £29k debt per household by 2019? Assuming that everyone borrows more and more with no regard for what they can afford; that the banks and other lenders ignore affordability rules & charge offs. Ridiculous! Anyone can draw a straight line up a graph if they ignore the real world. Honestly, I expected better from you.

  4. Jake

    Student Loans aren’t debt. Debts have to be paid back. They are in effect a change to your tax allowance once you are working. First job on 18k a year? You will pay a few quid a month extra tax – and that’s it. Most people will never pay them back in full and those that do will be earning good salaries.

  5. Guest

    “Good”. Nope. There’s a very low graduate premium in the UK. In fact, the system means unless you’re working in the city, you’ll lose money over your working lifespan compared to if you had not gone.

    Moreover, it is debt, there is no tax allow change and you don’t even know where the threshold for repayment is! You’re also right that most people won’t pay them back – they’ll pay massively more than the original loan AND the government will end up with a massive debt to pay!

  6. Guest

    So, your plan is to cut cut cut and have more deflation. Yea, that’ll work, just like the depression your plan caused before. And you’ve invested in what, outsourcing companies making a mint (or handing it back to the taxpayer if you don’t make enough!)?

  7. Leon Wolfeson

    So, you’re saying that people will not be able to afford basics like food. Right. Remind me how much better that is, again?

  8. Gerard White

    I’m no economist so please correct me if I have misunderstood something here. So between around 1995 and 2008 Banks devised ever more complicated ways of making money from lending money, between 2002 and 2006 it became obvious to the bankers that they had created debt mountains which the banks knew would never be repaid, so they packaged up these debts and sold them on the market as investment products which were so successful the banks went on to lend money to anyone who walked through the door, then package it up and sell it on, in effect not so much lending as selling money. This came crashing down in 2007/8 and the banks persuaded governments that if they went bankrupt, the world economy would collapse and so without any consultation with citizens, governments not only bailed out banks, but paid the bankers bonuses. Now instead of a banking crises we have a sovereign debt crises and government punishing the middle class with pay freezes, the working class with zero hour contracts and the poor with austerity measures, in effect passing the burden of bailing out the bankers onto those who had nothing to do with creating the problem.

    This government has printed £345 Billion and given it to the banks, who won’t lend it to anyone but the asset rich, during the same period 240 pay day loan companies charging interest of between 1,000 and 3,000%.

    So whilst the poor, working and middle classes are squeezed through increased taxes, reduced welfare and mass evictions from social housing, the bankers and financiers have seen their wealth multiply by 500%

    In order to help me decide which party to vote for, are any of the parties offering to investigate the bankers who got us into this mess in the first place? If Joe public defaults on their loans, they get taken to court, stripped of their assets, bankrupted, evicted and quite possibly jailed. Yet if the bankers default on their bailouts, they get bonuses for losing more money?

    Seems to me that the gap between the rich and the rest is now so wide that we live on different planets, the political system has been corrupted by the bankers and financiers and no party actually represents the vast majority of people.

  9. sarntcrip

    if the tories stay in they will privatise the student loan book then they will all have to be paid back and astronomical interest rates from privateers will cause misery

  10. sarntcrip

    increasing student loans will merely stifle the demand and ambition of many who could go to uno the revord on widening access to university is massively in favour of labour and against the tories who wish to use finance to make universities their own theifdom and deny access to the less well off say what you like about blair but hundreds of thousands of youngsters who would never have gone to uni went thanks to him, though i grant you 50% was simply too far with free schools which don’t need qualified teachers or to teach the national curriculum ofsted cannot possibly compare like with like it’s a dogs breakfast tory record on education is atrocious until we get an all party ultra long term strategy ideas will be changed after every change of government and continuity lost

  11. Leon Wolfeson

    Blair expanded access early on, but it contracted slowly over Labour’s term again.
    Again, we’re well behind other European counties now – except Germany, who imports a lot of graduates.

  12. Leon Wolfeson

    They already are selling them! People under the affected sold-off tranch of loans now have them listed on their credit records, for instance.

  13. Leon Wolfeson

    And that’s why you should support voting reform, so there can be a party to vote for which will represent you!

  14. Gerard White

    And which party do you propose could be trusted to carry out their pre-election pledges once they have power?

  15. Leon Wolfeson

    Try reading my post sometime…

  16. Gerard White

    The only socialist party in the UK the Socialist Workers Party and Red Roddy are a bunch of misogynistic tossers, I wouldn’t trust them to manage a sweet shop let alone run the country. I hear their party rules state that one must keep everything within the party, including sexual assault.
    Likewise I would like to see a real socialist party but i don’t see any serious contenders and anyway, if you look at history, the Americans have a bad habit of knocking off the leaders of socialist governments

  17. Leon Wolfeson

    Socialist? I’m no socialist. Neither was Labour in 1945 – it was Social Democratic.

    That’ll do.

  18. Gerard White

    OK, I’d like to vote for reform, who is offering reform?

  19. Leon Wolfeson

    Stop looking for top-down solutions and start realising that the answers are bottom-up.

  20. Gerard White

    I’m interested, how do I find out more?

  21. Leon Wolfeson

    You’d need to talk to a local group. I can’t really personally help unless you’re in Capitaville nee Barnet on that one.

  22. Gerard White

    I am in North London, but not Barnet. How do I find a local group?
    I am a Law student, so I might be able to make some worthwhile contribution.

  23. Leon Wolfeson

    It really is about identifying a local group of leftists, from where you can find other groups.

    Try – http://www.pcs.org.uk/en/london_and_the_south_east/anti-cuts-groups.cfm

  24. sean

    Sadly there is no honesty on either side of the debate. The truth is SOCIETY is funding too many useless degrees, children think that they need to have any old degree and are electing for the easy less rigerous “ology’s”, graduates will find out they have wasted 4 years of their career as well as thousands of pounds.

    Society will find out that the really useful degrees, the engineers, doctors, architects decide that actually they can earn more abroad AND never pay off their student debts.

    An extra 7% tax !! as well as paying inflated house prices, pensions for todays unfunded pensioners, building up their own funded pension funds.

    Cut the number of useless degrees and pay in full for the socially useful degrees.

  25. Guest

    Downskill, downskill! Pay for the rich to go to University, the few you’d leave.

    Germany imports graduates, you’d just see the good jobs go to other countries.

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