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Borrowing through credit cards, overdrafts and car loans has topped £200bn [Image: Guardian Design Team].

It’s very simple: Government policy, since the Conservative/Liberal Democrat Coalition slithered into office in 2010, has been to change public debt – money owed by the state – into private debt – that’s money owed by you.

It is a policy that has succeeded very well, because the Tories (and Liberal Democrats) had control over the nation’s purse strings and were pulling them tight. Anybody who lost state aid still needs money to live, but now they are borrowing it from private lenders instead of the state borrowing it and giving it to them.

The objectionable part of that is: The state also controls the number of jobs available in the national economy and the average wage being paid.

This means the Tories are using fiscal policy to drive the poorest people in the country into debt – £200 billion of it so far.

Look at some of the people who are said to owe money now, and the ways in which they are said to owe it:

‘Gig’ economy workers – those on zero-hours contracts or in similarly insecure working conditions – who have no financial security and must therefore rely on lenders without any confidence that they can ever pay back the cash.

Young people, who receive a lower minimum wage (‘National Living Wage’ – what a joke!) and who have been stripped of state aid such as housing benefit.

Renters, who have been stripped of cash by the Bedroom Tax.

Council taxpayers, whose Council Tax Benefit was ended and replaced with a “support” scheme in which everybody is forced to pay at least part of the bill (I recall the proposal was at least 15 per cent) – whether they can afford it or not.

Utility bill payers, who are having to pay for privatised companies’ greed while the government does nothing to regulate the increases.

Drivers. This Writer can’t help but include disabled people who have lost their mobility cars as a result of the Tories’ changes to the eligibility criteria for the new benefit that is supposed to help them with the increased cost of living with their disabilities – PIP.

So, will the government step in to relieve the recently-indebted of their burden?

Of course they won’t!

They spent seven years pushing it onto you; the last thing they’ll do is take it back now.

The irony is, due to the spectacular economic mismanagement that we all call “austerity”, the Tories haven’t even managed to cut the national debt. Instead they have very nearly tripled it.

The government needs to step in to help tackle the mountain of debt being racked up by the most vulnerable consumers in Britain, the chief financial regulator has warned, as new data shows that personal debt burdens are continuing to rise.

According to the Money Advice Service, there are now 8.3 million people in the UK with problem debts.

The debt charity StepChange, which has also released fresh data, said the percentage of its clients falling behind on payments went over 40% in the first half of 2017, while the average debt of the people it helps has also risen, from £14,251 in 2016 to £14,367 in the first half of the year.

Andrew Bailey, chief executive of the Financial Conduct Authority, told the Guardian – at the start of a series examining the £200bn in unsecured consumer credit amassed by households in Britain – that he was concerned about the sheer number of people who needs loans to make ends meet. He pinpointed gig economy workers, who do not have guaranteed hours, as in special need of credit to smoothe their incomes.

StepChange highlighted young people and renters as increasingly vulnerable, with many needing to borrow to cover the most basic everyday bills.

Bailey told the Guardian he had visited debt charities across the UK and that many people were facing difficulties with“frontline debt” such as council tax and utility bill arrears. He said organisations extending that kind of credit were often faster to recoup their losses, which can involve bailiffs, court orders and repossessions, than traditional lenders.

Consumer credit, which covers personal loans, credit cards and borrowing for cars, is rising at just under 10% a year, at a time when wages are falling at 0.4% a year taking inflation into account. Some 86% of cars are now bought on PCP (personal contract purchase) credit deals, which effectively leave borrowers leasing their vehicle. Meanwhile, nearly half of all borrowers on credit cards are on zero interest rate offers.

StepChange said the average council tax arrears declared by its clients has risen from £756 in 2013 to £1,012 this year. For electricity bills, arrears have risen from £521 to £668.

There’s some very interesting information in this Guardian article about how the debt crisis came about. It avoids mentioning the way the Tories jiggered about with benefits and focuses on how everybody else has been duped into indebtedness. Read:

There have been three stages to this process. In phase one, during the crisis and its immediate aftermath, appetite for debt waned markedly and households took advantage of low interest rates to pay off some of the money they had borrowed during the good times. But with higher oil prices pushing up inflation, wage growth weak and austerity biting, this meant recovery from the downturn was slow.

As a result, the government took steps to encourage banks to lend and people to borrow. The Funding for Lending Scheme provided incentives for lenders to make credit available for mortgages and business loans, while help to buy provided state subsidies for those trying to get a foot on the housing ladder.

The strategy worked – at least in the short term. Activity increased in the housing market, pushing up property prices and generating a feelgood factor among those fortunate enough to be owner-occupiers. With the collapse in oil prices driving inflation down to zero, the years 2013-16 were good years for consumers: their pay packets went further, unemployment was falling and house prices were going up.

Lenders, too, felt more confident and started to offer more attractive deals to borrowers. As Bank of England executive director Alex Brazier noted, the interest rate on a £10,000 personal loan has fallen from 10% in 2010 to 4% today. Credit card companies have been tempting customers with longer periods of 0% interest rates if they switch. Unsecured consumer credit is growing at 10% a year – six times as fast as the economy’s growth rate.

Stage three of the process began in June last year when the UK voted to leave the EU. Both the Treasury and the Bank expected this to have dire consequences for the economy, with the then chancellor George Osborne predicting a deep recession and a 500,000 increase in unemployment within two years.

The Bank cut interest rates in early August 2016 in the hope of stimulating some extra demand and was surprised at the result. Instead of collapsing, the economy grew more quickly in the second half of 2016 than it had in the first half. Consumers could see that the fall in the value of the pound would push up the cost of imported goods and so decided to buy big-ticket items – often with borrowed money – before prices went up. Spending plans were brought forwards, with the result that strong growth in late 2016 has been followed by weak growth in early 2017. Real incomes have been squeezed because prices have been rising more rapidly than wages. Borrowing has helped to fill the gap.

For now, debt is a problem for some individuals but not for the economy as a whole. Debt servicing costs are much lower than they were before the crisis and the unemployment rate is at its lowest since 1975. Difficulties would only really arise if the Bank felt the need to raise interest rates aggressively or if unemployment were to increase sharply for any reason.

There could be a severe run on the pound if the Brexit talks go badly, which would force the Bank of England to raise interest rates despite its concern about the impact on heavily indebted borrowers. A trade war between the US and China could derail what has been a fairly feeble global economic recovery.

Source: Britain’s debt time​bomb: FCA urges action over £200bn crisis | Business | The Guardian


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