View all newsletters
Sign up to our newsletters

Support 110 years of independent journalism.

  1. Business
  2. Economics
20 August 2013updated 22 Oct 2020 3:55pm

The personal debt bubble is fit to burst

We're almost in Wongaland already, writes Carl Packman.

By Carl Packman

Back in March 2012 the Office for Budget Responsibility (OBR) at least entertained the notion that economic growth would come from places other than an increase in household debt. Exports, investment, the lot. Today it doesn’t bother, the consumer will have to go this alone, even with bank lending squeezed and wages left wanting. 

Even George Osborne, during his Mais Lecture in February 2010, offered us this gem: “The overhang of private debt in our banking system and our households weigh heavy on future prosperity”. How right he was, but his response was to lead us down the “road to Wongaland”. 

Despite the optimism of low interest rates, at least until unemployment rates are sorted out, critics have pointed out that Mark Carney’s calls are really just a return to days where recovery will be fuelled by consumption and rising debt – as if we need more of that. 

Sure, people are returning to the shops, no doubt spurred on by the shiny weather, which is great for the economy, but what is the real upshot? Wages are falling in real terms and household debt is 153 per cent of GDP. On average each household in the UK is bagged with nearly £8000 in unsecured debt. Is the hope that we will get into more debt the only tool in the bag for economic growth?

Of course we should remind ourselves who the real winners are. Last year PwC said that credit cards were suffering a “mid-life” crisis as borrowers were using them less and taking out unsecured loans at a much faster rate. We’re being told to spend more but we cannot afford to? The winners: who else but payday lenders.

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

In 2009, during the economic crisis, the payday lending industry was worth £900m. A mere four years later and the industry is worth over £2bn. One well-known player in the industry, The Money Shop, had 34 staff and a turnover of £2.9m in 1998, today with 2,300 staff their income is £172.3m. 

Not long ago the economist Tim Harford tried to allay our fears and said that compared to other forms of consumer credit lending the payday lending industry was relatively small and not to be worried about. But their rapid growth from an industry worth a measly £100m in 2004 should be better noted.

The industry is small in comparison but is growing at a far more accelerated rate than its mainstream counterparts. CityWire recently estimated that more than half (52 per cent) of new consumer credit loans are being made by “other” banking institutions and non-banks including non-standard mortgage lenders and sub-prime lenders such as pawnbrokers and payday lenders. 

And so it is, more of us are relying on high cost credit from payday lenders, personal debt profiles will grow dangerously large, less money will be circulated on the high streets, consumers will be less able to shield themselves from unseen financial shocks and the whole debt cycle starts again.

As the CityWire report notes, the OBR anticipated that a credit boom would sustain an economic recovery. But that boom is being held by fringe financial institutions such as payday lenders who are expensive and suck more money out of the economy than they put in. In turn the tune of increased payday lending, rather than being the silver bullet needed for economic growth, will be its death knell. 

If the economy is allowed to continue to run like this, with Britons being some of the most indebted in the world only able to supplement decreasing real wages and the rising cost of living with high cost credit, then a personal debt bubble will eventually burst. Osbornomics needs to change direction, fast. All the warning signs are there.

Content from our partners
The promise of prevention
How Labour hopes to make the UK a leader in green energy
Is now the time to rethink health and care for older people? With Age UK

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU