If we’re past the worst, then no one thought to tell consumers

British households have become more, not less, concerned over the last five years.

At a time of growing optimism among UK policy makers that the worst might be behind us, ASR’s latest Survey of UK Household Finances suggests that the erstwhile engine of the economy, the consumer, is a long way from returning to health. Despite the glee shown in some quarters over the UK economy’s 0.3 per cent growth in the first quarter of this year, 23 per cent of working-age households think the UK is in depression, while a further 45 per cent believe it is in recession. British households have become more, not less, concerned over the last five years, with one in four worried for their job security. This is generating a cautious attitude towards spending and saving decisions that shows no sign of letting up.

Prior to 2007, the UK experienced a rapid rise in household debt relative to incomes, reaching a level that surpassed all other G7 economies. There were three trends underlying this increase. First, the UK saw a substantial rise in income inequality, but one that was not matched by an equivalent disparity in spending habits. Second, the UK was subject to growing regional divergences, with average incomes in London and the South East pulling further away from the rest of the UK. Third, financial innovation allowed greater access to credit; by 2007, 12,000 different mortgage products were available in the UK, with roughly two thirds targeted at ‘credit impaired’ borrowers. Simultaneously, the average loan-to-income ratio among first-time buyers rose from roughly 2½ times to almost 3½. Together, these trends imply young households at the lower end of the income distribution living outside London accounted for a disproportionate share of the rise in debt.

Sure enough, the Household Survey indicates that these are the individuals now under most financial stress. Of those earning less than £15,000 per year, 93 per cent worry about their financial situation and 85 per cent believe they are saving too little. Of those in this income group with outstanding debts, 54 per cent feel they are too high relative to their incomes and 43 per cent have had trouble meeting their interest payments over the last year.

This matters for the macroeconomy, since it is the distribution of debts that determines their sustainability rather than their aggregate size. With credit remaining ‘tight’, fiscal consolidation hitting the regions hardest and youth unemployment running at elevated rates, it is little wonder that the economy has struggled to get back to growth – the UK’s old growth model is broken. Rebalancing is proving to be a slow and painful process.

This difficult backdrop is splintering the voting base away from the three traditional mainstream political parties, and has proved a gift for the insurgent UK Independence Party (UKIP). By far the biggest losers from UKIP’s rise have been Conservatives, who have shed as many as 25 per cent of their 2010 voters to the party. 

Measures that might help those under greatest financial duress, such as reducing the pace of fiscal tightening, are likely to prove unpopular with those remaining faithful to the Tories. According to our survey, 92 per cent of Conservative Party supporters believe that addressing the national debt should remain a priority, and 64 per cent approve of the current government’s handling of the economy. More strikingly, however, it is not clear that such a move would curry favour among those it would be targeted at helping: those struggling to manage their own debts are marginally more inclined to agree that tackling the government’s debts should be a priority. The Tories look damned if they do and damned if they don’t.

A chasm has opened up between Tory supporters and the rest. Just 36 per cent of Conservatives say they are worse off since the last election, compared with 64 per cent of other voters. A striking feature of the survey is just how closely aligned UKIP, Labour and non-affiliated voters look in many respects (see chart 1) and how far from the rest the average Tory supporter is. In the absence of economic recovery, the Conservative Party will face an uphill struggle to win back swing voters.

All that said, there could be a chink of light for the Conservatives. Our survey indicates a growing belief that house prices will rise over the coming 12 months; on balance, 17 per cent think home values are more likely to rise than fall. The long-term efficacy of the recently-announced Help to Buy scheme seems questionable, but it already appears to be stirring up interest in the housing market. The motivation behind this seems quite simple: historically, there has been a strong correlation between house prices and consumer confidence in the UK. It seems like a gamble, but with few alternative options, it is a gamble worth taking.

Dominic White is chief European economist and Richard Mylles is a political risk analyst at Absolute Strategy Research

George Osborne arrives to attend a press conference at the conclusion of the IMF mission to the UK. Photograph: Getty Images.

Dominic White is chief European economist and Richard Mylles is a political risk analyst at Absolute Strategy Research

Photo: Martin Whitfield
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Labour MP for East Lothian Martin Whitfield: "I started an argument and ended up winning an election"

The former primary school teacher still misses home. 

Two months ago, Martin Whitfield was a primary school teacher in Prestonpans, a small town along the coast from Edinburgh. Then he got into an argument. It was a Saturday morning shortly after the snap election had been called, and he and other members of the local Labour party began discussing a rumour that the candidate would be an outsider.

“I started an argument that this was ridiculous, we couldn’t have a candidate helicoptered in,” he recalls. He pointed out that one of the main issues with the Scottish National Party incumbent, the economist and journalist George Kerevan, was that he was seen as an outsider.

“I kept arguing for an hour and a half and people started gently moving away,” he jokes. “About two days later I was still going on, and I thought enough’s enough.” 

He called Iain Gray, the Scottish Labour veteran, who interrupted him. “He said, 'Right Martin, are you going to put up or shut up?’ So I filled in the forms.

"Then I had to have a very interesting conversation with my wife.”

One successful election campaign later, he is sitting in the airy, glass-roofed atrium of Westminster’s Portcullis House. Whitfield has silver hair, glasses, and wears a Labour-red tie with his shirt. He looks every bit the approachable primary school teacher, and sometimes he forgets he isn’t anymore. 

I ask how the school reacted to his election bid, and he begins “I have”, and then corrects himself: “There is a primary four class I had the pleasure to teach.” The children wanted to know everything from where parliament was, to his views on education and independence. He took unpaid leave to campaign. 

“Actually not teaching the children was the hardest thing,” he recalls. “During the campaign I kept bumping into them when I was door-knocking.”

Whitfield was born in Newcastle, in 1965, to Labour-supporting parents. “My entire youth was spent with people who were socialists.”

His father was involved in the Theatre Workshop, founded by the left-wing director Joan Littlewood. “We were part of a community which supported each other and found value in that support in art and in theatre,” he says. “That is hugely important to me.” 

He trained as a lawyer, but grew disillusioned with the profession and retrained as a teacher instead. He and his wife eventually settled in Prestonpans, where they started a family and he “fought like mad” to work at the local school. She works as the marketing manager for the local theatre.

He believes he won his seat – one of the first to be touted as a possible Labour win – thanks to a combination of his local profile, the party’s position on independence and its manifesto, which “played brilliantly everywhere we discussed it”. 

It offered hope, he says: “As far as my doorstep discussion in East Lothian went, some people were for and against Jeremy Corbyn, some people were for and against Kezia Dugdale, but I didn’t find anyone who was against the manifesto.”

Whitfield’s new job will mean long commutes on the East Coast line, but he considers representing the constituency a “massive, massive honour”. When I ask him about East Lothian, he can’t stop talking.

“MPs do tend to say ‘my constituency’s a microcosm’, but it really is Scotland in miniature. We have a fishing industry, crabs and lobsters, the agricultural areas – the agricultural soil is second to none.” The area was also historically home to heavy industry. 

After his first week in Westminster, Whitfield caught the train back to Scotland. “That bit when I got back into East Lothian was lovely moment,” he says. “I was home.”

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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