Debt has soared under the coalition - how will the chancellor spin that to his followers?
George Osborne has come up against what some political analysts are calling ‘Osborne’s dilemma’: if he delivers his last budget too full of glee about the recovery, voters may assume that austerity has done its job and turn to Labour for a milder repair of public finances. On the other hand he’ll want to praise the work his government has done.
Meanwhile, deputy prime minister Nick Clegg, and Business Secretary Vince Cable pointed out yesterday that the recovery would not be happening were it not for the Liberal Democrats.
However there is the small matter of ‘delayed recovery’. Many other rich economies recovered earlier than the UK. Osborne’s belief in the confidence fairy meant that wages struggled, tax receipts were low during recession years, missed opportunities were aplenty with low government borrowing costs, and the Tories, rather than being the party of ‘conserving’, seemed only to want to sell off the family silver.
In any case, what recovery, and for whom? Many people in the UK, rather than experiencing a recovery are only just realising the hangover. With wages struggling as they were in the recession years, borrowing money seemed like the only alternative if you wanted food on your plate, and Britons up and down the country are still blighted with debt.
A rush of reports are being published to reflect that. Today sees the release of a report by the London Assembly on problem indebtedness in the capital, which finds around half a million Londoners are currently over-indebted or in financial difficulty.
The report shows, however, that the need for debt since 2008 has altered, where many more people are taking out different forms of credit, from payday loans, overdrafts, credit cards, to lesser known forms like home credit, guarantor loans, or car loans, just to afford essential living costs.
An increasing burden for many London families is council tax arrears. This has been on the horizon for some time. Council tax benefit changes in April 2013, which the government championed as a key saving but has cost families dearly, has combined with stagnating incomes and rising living costs and made life even harder for some.
This accords with a report published yesterday by StepChange, the debt charity, which has seen a dramatic national rise of cases in council tax arrears among its clients. In 2010, just 10 per cent of StepChange Debt Charity clients had arrears on their council tax bills. By 2014 it had grown to 28 per cent. And not only are more Britons in arrears, they owe more: with an average of £832 in council tax arrears – up from £675 in 2010.
One of the findings in the StepChange report is that if a creditor offers a range of options for repayment schedules, this can positively impact on stabilising a debtors’ finances. Researchers found that where affordable payment plans are introduced:
- 79 per cent said that their anxiety reduced;
- 74 per cent are able to sleep more easily;
- 60 per cent said it stabilised their finances;
- 47 per cent said it led to family relationships improving;
- 32 per cent of those who had been out of work said it made it easier to apply for a new job;
- 27 per cent of those who had been out of work said it made it easier to sustain a new job; and
- 83 per cent of those in work said it made it easier to sustain their current job.
The problem is some creditors prefer more imposing methods of debt collection, which in the long term help nobody. The Financial Conduct Authority, the independent regulator, has also published some findings today from their thematic review of payday lending, which found that too many lenders in the last year had been treating its customers who were in arrears unfairly.
One of the ways some firms would treat customers unfairly is very familiar indeed: ‘legal’ letters. Some payday lenders were implying to struggling customers that legal action would be taken against them – which only exacerbates an already terrifying situation.
The financial crisis made life very difficult for many low-income people in the UK. Debt was an instant reality. What’s more, the very companies they were in debt to – legal companies – made life even worse for them.
We might be entering a recovery, but it’s not being felt evenly. Yet another report, this time by the Money Saving Movement, found that around 94 per cent of social housing residents in the UK have experienced financial difficulties in the last six months.
So when George Osborne delivers his last budget on the 18th, he really has nothing to be smug about.
Leave a Reply