Personal debt in Britain stands at £200bn and grows by 10 per cent a year. Any increase in interest rates could tip millions over the edge.
New figures from the Guardian today show 8.3m people in Briton have ‘problem debts’ and borrowing is growing by 10 per cent a year. Will this be the next financial bubble to burst?
As real wages drop due to inflation, millions of people are increasingly borrowing money to make ends meet, new figures show today; using payday loans and credit cards to pay for bills, food and basic services.
Overall, personal debt in Britain is estimated to stand at between £200bn and £270bn, growing from around £160bn in 2012.
The number of people struggling to repay this debt is increasing, according to charity StepChange. Mike Bailey chief executive of the charity said that:
“Any increase in borrowing costs could tip households, many of which are already on a financial knife-edge, into serious financial hardship”
What’s this mountain of debt composed of? An increasingly proportion, currently about £30bn, comes in the form of PCPs (personal contract purchases) on cars. Around 86 per cent of new vehicles are bought on credit.
Many have compared these credit arrangements to subprime mortgage lending in the run up to the 2009 financial crisis.
The head of the Financial Conduct Authority (FCA), Andrew Bailey, said the situation was not “sustainable”. He pointed to the gig economy and low wages as reasons why people needed to borrow.
Research by the FCA shows that one in six people with credit card debt, personal loans and car loans (about 2.2m people) are in financial distress.
With wages decreasing on average by 0.4 per cent a year due to inflation, economic growth in Britain (coming mostly in the service sector) is being propped up by this bubble of debt. This is unsustainable and unfair.
The Tory’s attempt to reduce the deficit and reign in public spending through austerity has passed the buck onto individual households, where personal borrowing is fuelling what little economic growth we see.
TUC General Secretary Frances O’Grady explained the situation: “The government is relying on consumers for what little growth we’re getting.” These consumers are in turn relying on borrowing to do this, O’Grady said.
This is clearly unsustainable. And some are predicting catastrophic outcomes.
Commenting in July on growing levels of consumer debt, Labour MP Rachel Reeves said:
“Some of those issues we saw in the mortgage market in 2008 are now rearing their heads in unsecured lending and in car purchases”
To avoid another crisis of this scale, the government needs to reverse austerity and inject money into the economy; a start would be to immediately scrap the public sector pay cap, take action on precarious work and increase the minimum wage.
Oscar Webb is a reporter for Left Foot Forward. He tweets here.Like this article? 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.