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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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.