Cameron wants to reduce private debt - but when and how?

A rapid repayment of debt is a recipe for recession, not recovery.

According to reports this morning, David Cameron will use his conference speech this afternoon to call on Britain's households to pay down their debts. He will say that dealing with debt means not just paying down public debt but also "households - all of us - paying off the credit card and store card bills." Such comments would go beyond the government's existing argument about the importance of dealing with the public deficit to an argument that about reducing the UK's levels of personal debt.

What are we to make of this new message? In one sense it fits with the government's wider narrative of Britain having maxed out the nation's credit card. In this respect, Cameron's comments are a statement of the obvious, albeit an important one. The UK's household debt levels remain crushingly high both by historical and international standards. Sooner or later it's vital that they come down. The Prime Minister is also right to say that this was no ordinary recession, and that this will be no ordinary recovery.

But in another sense the comments are a dramatic and risky escalation of the government's argument on debt. That's because, although they fit the government's story, they run counter to the economic logic that underlies the current forecasts for UK recovery. As we pointed out earlier this year, the most recent forecasts from the Office Budget of Responsibility, published in March, say that the UK's stock of personal debt will rise, not fall, in the coming years - and not by a little but by a lot. The OBR projects that household debt will grow from £1.6 trillion in 2011 to £2.1 trillion in 2015, a rise from 160 percent of household disposable income to 175 percent. That growth is expected to sit alongside low savings, with the ratio of household saving to disposable income falling to roughly 3.5 percent - half its average over the past 50 years.

In the current economic climate, it's hard to overstate the importance of this difference of opinion over what will - or what should - happen to household debt. Put simply, the OBR's projections for growth rest on their forecasts for household consumption, which rest on their forecasts for household debt. If the OBR were to be proved wrong on debt - if it were to fall rather than rise - then their forecasts for consumption would presumably need to be downgraded, as would their forecasts for growth.

The following chart puts this is all into stark perspective. In all recent recessions in the UK, consumption growth had returned at this point, airlifting the economy to recovery. By contrast, today's trends in household consumption are a millstone around the neck of the economy.

Household consumption following the onset of recession
% fall in real total household consumption

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As well as running against OBR forecasts, the Prime Minister's message doesn't chime with the current reality of the household behaviour. Savings are currently falling not rising. The most recent data revealed that the household savings ratio had dipped from 5.1 to 4.6 percent. A recent poll carried out for the Resolution Foundation by ipsos MORI helped to explain why: almost half of all people on low-to-middle incomes now say they are running out of cash every month, and more than one in four say they're unable to make regular savings. People aren't overspending - they are reducing their savings just to stay afloat.

Of course, none of this is to deny that private debt must fall. The question is: when and how? Reducing the UK's stock of personal debt is likely to be a slow process. It needs to take place via a careful paying down of bills on the back of a recovery of real earnings, enabling families to save a bit more without immediate and dramatic reductions in consumption. The alternative option - a rapid repayment of debt at a time of falling incomes, fragile consumption, rapidly weakening export markets, and sharp public sector cuts - is a recipe for recession, not recovery. The Prime Minister should be careful what he wishes for.

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A swimming pool and a bleeding toe put my medical competency in doubt

Doctors are used to contending with Google. Sometimes the search engine wins. 

The brutal heatwave affecting southern Europe this summer has become known among locals as “Lucifer”. Having just returned from Italy, I fully understand the nickname. An early excursion caused the beginnings of sunstroke, so we abandoned plans to explore the cultural heritage of the Amalfi region and strayed no further than five metres from the hotel pool for the rest of the week.

The children were delighted, particularly my 12-year-old stepdaughter, Gracie, who proceeded to spend hours at a time playing in the water. Towelling herself after one long session, she noticed something odd.

“What’s happened there?” she asked, holding her foot aloft in front of my face.

I inspected the proffered appendage: on the underside of her big toe was an oblong area of glistening red flesh that looked like a chunk of raw steak.

“Did you injure it?”

She shook her head. “It doesn’t hurt at all.”

I shrugged and said she must have grazed it. She wasn’t convinced, pointing out that she would remember if she had done that. She has great faith in plasters, though, and once it was dressed she forgot all about it. I dismissed it, too, assuming it was one of those things.

By the end of the next day, the pulp on the underside of all of her toes looked the same. As the doctor in the family, I felt under some pressure to come up with an explanation. I made up something about burns from the hot paving slabs around the pool. Gracie didn’t say as much, but her look suggested a dawning scepticism over my claims to hold a medical degree.

The next day, Gracie and her new-found holiday playmate, Eve, abruptly terminated a marathon piggy-in-the-middle session in the pool with Eve’s dad. “Our feet are bleeding,” they announced, somewhat incredulously. Sure enough, bright-red blood was flowing, apparently painlessly, from the bottoms of their big toes.

Doctors are used to contending with Google. Often, what patients discover on the internet causes them undue alarm, and our role is to provide context and reassurance. But not infrequently, people come across information that outstrips our knowledge. On my return from our room with fresh supplies of plasters, my wife looked up from her sun lounger with an air of quiet amusement.

“It’s called ‘pool toe’,” she said, handing me her iPhone. The page she had tracked down described the girls’ situation exactly: friction burns, most commonly seen in children, caused by repetitive hopping about on the abrasive floors of swimming pools. Doctors practising in hot countries must see it all the time. I doubt it presents often to British GPs.

I remained puzzled about the lack of pain. The injuries looked bad, but neither Gracie nor Eve was particularly bothered. Here the internet drew a blank, but I suspect it has to do with the “pruning” of our skin that we’re all familiar with after a soak in the bath. This only occurs over the pulps of our fingers and toes. It was once thought to be caused by water diffusing into skin cells, making them swell, but the truth is far more fascinating.

The wrinkling is an active process, triggered by immersion, in which the blood supply to the pulp regions is switched off, causing the skin there to shrink and pucker. This creates the biological equivalent of tyre treads on our fingers and toes and markedly improves our grip – of great evolutionary advantage when grasping slippery fish in a river, or if trying to maintain balance on slick wet rocks.

The flip side of this is much greater friction, leading to abrasion of the skin through repeated micro-trauma. And the lack of blood flow causes nerves to shut down, depriving us of the pain that would otherwise alert us to the ongoing tissue damage. An adaptation that helped our ancestors hunt in rivers proves considerably less use on a modern summer holiday.

I may not have seen much of the local heritage, but the trip to Italy taught me something new all the same. 

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear