The average UK household is set to owe close to £10,000 in unsecured debt by the end of 2016
George Osborne in his recent party conference speech took the opportunity to praise the ‘national recovery’ six times. Given that his speech was a 30 minute job interview for next leader of the Tory party, I’m not surprised he said it. I am, however, surprised he means it.
While the line is that the British economy is ‘motoring ahead’, albeit not as fast as last year because of the eurozone/emerging market drag, with personal debt forecasts as they are, the house of Great Britain is mostly built on sand.
A report published earlier in the year by PricewaterhouseCoopers (PwC) found that the average UK household is set to owe close to £10,000 in unsecured debt by the end of 2016, more than ever before in cash terms. 2014 saw unsecured debt rise by 9 per cent to an all-time high, in cash terms, of £239bn or close to £9,000 per UK household.
Despite consumer confidence being relatively high, as the total household debt (including secured debt) to income ratio reaches 172 per cent in the coming years – exceeding its previous peak in the run up to the financial crisis – how people actually manage their finances will become a lot more tricky.
A survey, published yesterday, finds that there is a generational element to this problem. Orbis Access, the investment company, polled 1,110 UK parents of children aged under 18-years-old to find 75 per cent of them felt their children will need more financial support in their early adulthood than they did themselves because of university tuition fees, property inflation and rising living costs.
In other words we are creating what Daniel Gross, author of the book Better, Stronger, Faster, called the ‘It Sucks To Be Me’ generation.
In the Orbis survey, over two fifths (42 per cent) said they were concerned about their children leaving higher education with large debts. But that is not just student debt. Students who take a job while studying, as many do, particularly if they are denied access to maintenance loan, are just as likely to be working poor as anyone else in the labour market.
Of course debt can spiral. Use of consumer credit and the need to take on more debt was once done on the relatively safe assumption that as we became older we would be financially better off. But even if paychecks become larger, the precariousness of bigger and uglier debt profiles weighs heavy on the future.
And problem debt doesn’t just stop at the door of the debtor, it impacts upon us all. Another report from PWC, this time looking at employees in the US, surveyed the views of over 1,700 full-time employed adults to find that one in five employees reports issues with personal finances as having been a distraction at work.
Finances are more likely to be a distraction at work for Gen X (34-54) and Gen Y employees (21-33). 37 per cent said that at work each week they spend three hours or more thinking about or dealing with issues related to their personal finances.
But while the figures are still high, for most people this represented an improvement on figures from previous years, with the exception of Generation Y, who are the only generation that haven’t recorded an improvement in the last two years on reporting personal finances as a work distraction.
As the country tries to improve productivity levels, indebted populations become distracted at work. As the cost of living becomes higher, we take on more debt in full knowledge that a payrise is not forthcoming. The next generation of employees will leave university (if they choose to go) with not just student debt, but dangerously high levels of consumer debt and the average Briton will owe £10k by 2016.
It’s breathtaking that anyone would think this is progress.Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.