Executive Leader Cllr Kieran Quinn

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Councillor Kieran Quinn

Britain's looming debt crisis

Friday, 22 September 2017

This week a stark figure emerged revealing the scale of the growing crisis of consumer debt in Britain. £200bn of debt has been amassed on credit cards, personal loans and car finance deals; a level equal to that which was reached prior to the 2008 financial crisis. With an increase in interest rates on the cards there is concern among policy makers that households will reach breaking point.

To understand what’s behind this growth in debt you only have to look at the geographical spread. Information from the money advice service puts the number of people in the UK with problem debts at around 8.3 million, though they are far from equally distributed around the country.

The definition of problem debt is debt that causes individuals to struggle to pay bills each month or to miss at least three bill payments in a six month period. Areas where more than 20% of people have this kind of debt include Blaenau Gwent, Hull and Manchester; three post-industrial areas still struggling to replace the high-wage, skilled employment that existed just a few decades ago with anything other than low wage, unskilled, insecure work.

Whilst financial education could arguably be improved, simply telling people who have no money that debt is bad is not going to stop them borrowing when they would otherwise be unable to afford to eat, heat their homes or fund a means of travelling to work.

People such as the Financial Conduct Authority and MPs are already calling for the government to take action on debt, though it is some of the government's actions that have caused this problem in the first place. For example, the continuing pressure on wages driven by the Government’s pay cap, which I wrote about last week, is a contributing factor forcing people to borrow more money to survive. The failure to provide affordable housing has stoked up house prices to a level where they eat up a greater proportion of household income than ever before. The lack of an industrial strategy has stopped post-industrial towns from finding a new purpose and deprived the economy of skilled, well paid jobs. And finally, the continuing mismanagement of Brexit has crashed our pound, driven up inflation and created uncertainty for business such that investment in our economy is drying up.

It is clear however that there are actions the government can take. Just glancing at the forecourt of any car dealership gives a clear illustration of just how easy obtaining credit has become. When a brand new car can be obtained for just £150 per month, it’s difficult to resist the temptation. Equally, with the flooding of the market with 0% interest credit cards, why pay off your balance when you can just keep transferring it to another provider when the offers expire? Cutting off these kinds of offers immediately would be a disaster for consumers, but clearly some regulation should be introduced to reduce their proliferation and bring debt back down to sustainable levels.

The unfortunate, and often unsaid, truth is that without regulation these deals won’t last forever anyway. It may be that when lenders decide that they have lent out too much compared to the cash they have in the bank they do just turn off the tap. This would mean that all of a sudden households whose income doesn’t cover the cost of living would have nowhere else to obtain credit. That is, unless you include loan sharks.

I therefore welcome the proposal for an inquiry in to the matter by the Treasury Select Committee and will be keeping an eye on the issue. I only hope that the identification of the problem debt bubble has not come too late. The thing about bubbles is that they have a tendency to burst.

Posted by: Kieran Quinn

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