Debt. 30, 40 or 50 years ago it was a dirty word, something to be avoided and only to be acquired in the most important or extreme circumstances. Now it is by and large the norm of 21st Century Britain. In fact, it is in many cases encouraged and has in itself gone through a vast and thorough cleansing to alter its tarnished image. Most people have ‘debt’ of some type and can live with it comfortably, so long as their personal situations allow them to do so. But, as Alex Brazier: Financial Stability Director at the Bank of England (BoE) has recently stated, ‘household debt, like most things that are good in moderation, can be dangerous in excess’. With this point, and Brazier’s recent warning that High Street Banks were in danger of ‘a spiral of complacency’ over personal and household debt, a look at the facts, figures and fears over the subject of debt is important.
Personal and Household debt encompasses and includes all debts to individuals and households in the UK; everything from credit card bills to mortgages and other bank loans. It is, as I have noted a phenomena of post-Keynesian economics and in the past decade has reached astronomic proportions. The BoE’s figures put the number at about £1.5 trillion. This eye-watering sum has been increased over the last few years by the rocketing number of unsecured loans and Personal Contract Purchase deals on good such as cars, which on its own, has concerned a number of economic think-tanks and authorities. But more worrying are the related percentage statistics. As a proportion of household income, household debt currently stands at roughly 142% and is predicted to rise to 153% in 2022 according to the Office for Budget Responsibility.
It is this creeping increase that has the likes of Brazier concerned. It has raised the question for both the experts and the rest of us of how much personal and household debt is too much? When does it become a ‘dangerous excess’? Well, when compared to pre-2008 crisis levels which saw household debt as a proportion of household income at 160%, it is arguable that currently, there is no immediate danger of ‘excess’. But, it is the medium term which has the experts concerned; and its not hard to see why. With household debt currently at 142%, predicted to reach 153% by 2022, it is not unreasonable to suggest that by the end of the next decade, the pre-crisis levels of debt and hence borrowing will have once again been reached and possibly even exceeded. In other words, what these statistics signal is the potential return to the attitude of complacency which existed before 2008.
But this all begs the question; why are the figures so high? Well in short, the answer is that the UK economy needs them to be. Now, I’m not trying to be cryptic: I’m being quite honest. It has everything to do with the fundamental nature of the UK economy. It is a service economy; financial services are its life-blood and backbone. In a word, it thrives on debt. Let me put it this way; if no one borrows, the banks can’t lend: if the banks can’t lend, well, you get the picture; the economy will crumble. The recent statistics on personal and household debt and these basic facts of the UK economy combine to again highlight the dangers and issues of a service sector economy without a manufacturing or industrial base to support it should financial markets become unstable as they did in 2008. In essence, what they tell us it that the conditions for a financial catastrophe on the scale of 2008 are being prepared once again; the extraordinary increases in borrowing and thus debt are a sign of slowly creeping complacency, and the patent failure by the conservatives to solve the issue of the service sector economy has only served to deepen both the dangers and fears. It was said by Louis Althusser, a socialist theorist no less, that the institutions of society existed to support the economic system, and the continuing failure of economic reform to alleviate the problem of debt and broaden the outlook of the British economy serves only to confirm his ideas. It is the sad reality of modern Britain, that as individual debt rises, and the seeds of financial disaster are sown, the institutions of society simply continue to support a system flawed at its very base, to which the statistics around personal and household debt, not to mention the ballooning student debt figures, currently at £89 billion, are testament.
But what of the future? Can we look forward to a debt-free world of plenty one day? Currently, with the UK economy as it is, no. It is build on services, it has not backbone. Household and Personal debt are its life-support: the ladder that has put it where it is. Unless there is a fundamental shift in economic planning and outlook, debt will continue to be an ever-present in the UK, and will continue to saddle the ordinary people for decades, even centuries to come.