The personal debt bubble is fit to burst

We're almost in Wongaland already, writes 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.

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.

Cash Loans. Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

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Labour's establishment suspects a Momentum conspiracy - they're right

Bernie Sanders-style organisers are determined to rewire the party's machine.  

If you wanted to understand the basic dynamics of this year’s Labour leadership contest, Brighton and Hove District Labour Party is a good microcosm. On Saturday 9 July, a day before Angela Eagle was to announce her leadership bid, hundreds of members flooded into its AGM. Despite the room having a capacity of over 250, the meeting had to be held in three batches, with members forming an orderly queue. The result of the massive turnout was clear in political terms – pro-Corbyn candidates won every position on the local executive committee. 

Many in the room hailed the turnout and the result. But others claimed that some in the crowd had engaged in abuse and harassment.The national party decided that, rather than first investigate individuals, it would suspend Brighton and Hove. Add this to the national ban on local meetings and events during the leadership election, and it is easy to see why Labour seems to have an uneasy relationship with mass politics. To put it a less neutral way, the party machine is in a state of open warfare against Corbyn and his supporters.

Brighton and Hove illustrates how local activists have continued to organise – in an even more innovative and effective way than before. On Thursday 21 July, the week following the CLP’s suspension, the local Momentum group organised a mass meeting. More than 200 people showed up, with the mood defiant and pumped up.  Rather than listen to speeches, the room then became a road test for a new "campaign meetup", a more modestly titled version of the "barnstorms" used by the Bernie Sanders campaign. Activists broke up into small groups to discuss the strategy of the campaign and then even smaller groups to organise action on a very local level. By the end of the night, 20 phonebanking sessions had been planned at a branch level over the following week. 

In the past, organising inside the Labour Party was seen as a slightly cloak and dagger affair. When the Labour Party bureaucracy expelled leftwing activists in past decades, many on went further underground, organising in semi-secrecy. Now, Momentum is doing the exact opposite. 

The emphasis of the Corbyn campaign is on making its strategy, volunteer hubs and events listings as open and accessible as possible. Interactive maps will allow local activists to advertise hundreds of events, and then contact people in their area. When they gather to phonebank in they will be using a custom-built web app which will enable tens of thousands of callers to ring hundreds of thousands of numbers, from wherever they are.

As Momentum has learned to its cost, there is a trade-off between a campaign’s openness and its ability to stage manage events. But in the new politics of the Labour party, in which both the numbers of interested people and the capacity to connect with them directly are increasing exponentially, there is simply no contest. In order to win the next general election, Labour will have to master these tactics on a much bigger scale. The leadership election is the road test. 

Even many moderates seem to accept that the days of simply triangulating towards the centre and getting cozy with the Murdoch press are over. Labour needs to reach people and communities directly with an ambitious digital strategy and an army of self-organising activists. It is this kind of mass politics that delivered a "no" vote in Greece’s referendum on the terms of the Eurozone bailout last summer – defying pretty much the whole of the media, business and political establishment. 

The problem for Corbyn's challenger, Owen Smith, is that many of his backers have an open problem with this type of mass politics. Rather than investigate allegations of abuse, they have supported the suspension of CLPs. Rather than seeing the heightened emotions that come with mass mobilisations as side-effects which needs to be controlled, they have sought to joins unconnected acts of harassment, in order to smear Jeremy Corbyn. The MP Ben Bradshaw has even seemed to accuse Momentum of organising a conspiracy to physically attack Labour MPs.

The real conspiracy is much bigger than that. Hundreds of thousands of people are arriving, enthusiastic and determined, into the Labour party. These people, and their ability to convince the communities of which they are a part, threaten Britain’s political equilibrium, both the Conservatives and the Labour establishment. When the greatest hope for Labour becomes your greatest nightmare, you have good call to feel alarmed.