The debt collector's hammering at the front door. Will this be a wake-up call for Westminster?

Unexpected people are struggling. The middle is getting closer to the bottom. So what is the way out?

Charleen is talking to me by phone, and I can hear her three kids screaming in the background. She’s been working from 7am at home because she can’t afford the childcare to go into the office. The rent is due on Monday, and she’s running out of options. The TV and kids’ computer games have already gone to the pawnbrokers and her private landlord doesn’t give a damn. She already owes £2,000 to pay day lenders. Now she’s choosing between eating and heating.

“You can’t win, no matter how you look," she says, "I’m getting all sorts of panic attacks, I’m stressing about keeping a roof over me and my children’s heads… A lot of people feel the same. You can't afford to rent privately, pay the bills and eat.”

Millions of people around the UK are now finding themselves in the same position. As the credit card bills for Christmas thud through the letterbox, January 14 has been labelled “debt day”.

Those suffering are no longer just in the lowest income groups. They are not irresponsible spenders and they often work overtime. Charleen works as an accountant. She manages a company’s finances, but she can’t make the books balance at home. The cost of living is rising like a tide, and when wages don’t keep up, even middle-income earners struggle to stay afloat. The household buget on the back of an envelope goes in the bin. We borrow to plug the gap.

“People ask me why I’m lending from these places (pay day lenders) when there’s so much to pay back, but I have no choice. I just have to pay my rent. I’m Robbing Peter and Paul to pay Mike. I’ll try and catch up but everyone just wants their money.”

“To be honest it’s crossing into the family home – I’ve got arguments with the other half and I’m shouting at the kids constantly. I try not to burden the kids. I don’t want them to have a bad life . . . They ask why I’m not eating and I just say I’m not hungry, or I ate a bite whilst I was cooking. This is just the stuff you say.”

This government talks a lot about cutting state debt. But the figure it talks less about is personal debt held by individuals on loans and credit cards. According to Credit Action, that figure now stands at a whopping £1.4 trillion – and it’s growing.

In a twisted irony, experts say that some of the government’s desperate attempts to cut state debt may actually increase personal debt. When the benefit cap kicks in, Charleen says she will be borrowing more to plug the gap. Parents will go to pay day lenders to compensate for housing benefit changes. Students are already borrowing more for higher tuition fees to cover education cuts. Without doing more to help people, reductions in the state debt are being met by an increase in personal debt as Britons try to compensate.

Anna Hall knows all about this. She works as a money advice manager at Citizens Advice, a charity that registered 2.1 million debt problems last year alone. In the wake of the Christmas holidays, she knows that all advisers will be on call as the telephones ring off the hook. She says this year, it’s only predicted to increase.

“At the moment most of our calls are about benefit changes, but we’re expecting a knock-on effect as people take on more debt just to get through it. We’re all expecting it to get much worse. Meanwhile one of the cuts to hit local authorities is Citizens Advice services so we can’t even provide all the advice we want. It’s a perfect storm really.”

Hall says it’s hard to stereotype the people who are asking for help. In the last round of figures, 61 per cent of Citizens Advice callers were in some form of work. Most survive on the edge with low wages and high costs, so a sudden change can quickly push them under. A relationship breakdown. A dentist bill. A fridge malfunction. A funeral. With no financial space to meet these surprises, the debt spiral starts.

But Hall says it’s not just borrowers that are changing. It’s also the lenders.

“Before the crash it was easy to access to cheap credit,” says Hall, “Now people are turning to pay day loan companies and credit cards for rent, food and clothes – the really basic stuff. That’s the big shift. Benefits are already incredibly tight, including for those in work, and it’s harder to make ends meet.”

Walk down your local high street and you’ll see evidence of this growing borrowing culture just about anywhere in the UK. Wonga. Peaches. The Money Shop. In London the adverts are plastered on red buses. "Money in minutes!" scream local billboards. Money in seconds is available on phone apps from your bedroom. By the age of ten, a third of children have used their parent’s credit card to make an online purchase. We are a nation of borrowers and lenders. We don’t produce goods, we shuffle credit.

To put this problem in perspective, look at the graph (below) produced by Morgan Stanley. We can see that the UK is the most indebted country in the developed world – we are deeper in the red than Japan, the USA and Europe. But only a tiny fraction of our total debt is held by government. Most is held by the financial sector, but a good chunk of it is also held by households. In fact, the level of household debt in this country is actually greater than government debt.

The bulk of this household debt is not from credit cards or payday loan companies, but mortgages. But owning your own home doesn’t mean you’re secure. Take Christine, who works as a 999 call operator in Oxfordshire. She was just two years away from paying off her mortgage and taking several holidays a year until her husband walked out on her. Then everything changed. Making mortgage repayments and household bills with just one earner was impossible, and she racked up some £6,000 worth of debt on credit cards just buying basics and working overtime.

“Yes there are people who spend irresponsibly,” she says, “People say they have to have things but they don’t really. People say they have to buy their kids certain Christmas presents, but all they’ve got to do is say No. For me, it wasn’t like that. Everything was affordable until we broke up. It was an accidental debt.”

“Only now do I realise how little room there is to manoeuvre,” she goes on, “I’m over the moon if I get to the end of the month and have £20 in my account, but if something went wrong with the car or something then that would be it.”

But can’t she just move to a smaller place? Christine already moved out of her home to rent a £700 a month flat, and the only cheaper alternative she could find was full of cockroaches and still left her struggling. For others, moving often means leaving their job and family and friendship networks, not to mention uprooting their children’s education. For too many people, it doesn’t seem possible to work your way out.

“It breaks your heart sometimes”, says Christine, “I put in forty or fifty hours a week and what’s it for? Charity shops and egg on toast for tea. You can make a joke of it, but sometimes it wears a bit thin. It can happen to anyone at the toss of a coin.”

Given that the financial crisis was triggered by irresponsible lending, why doesn’t the government talk more about this? The answer from experts is worrying. When two thirds of the British economy is built on household spending, and when a large bulk of that spending is fuelled by debt, no one wants to pop the bubble. David Cameron found this out the hard way when he was forced to remove calls for Britons to pay off their credit card bills in his 2011 conference speech. He hadn’t clocked that this would plunge the economy into a much deeper recession.

“There is a bit of denialism about the role of debt in the recovery,” says James Plunkett, director of policy at the Resolution Foundation, “there is only just starting to be a realisation that this needs to be looked at.”

In fact, Plunkett argues, one of the biggest problems with the government’s recovery plan is that people aren’t borrowing enough:

“Early projections from the Office of Budget Responsibility assumed that households would borrow more than they have to compensate for declining real wages. The fact that they haven’t is one of the key reasons why growth isn’t going as well as we thought.”

In other words, the government was hoping for a more debt-fuelled recovery than the British people have given them.

But the fact that Britons, on average, are paying off more than we predicted, does not mean that debt isn’t a growing problem. Looking at averages hides the fact that there’s a long tail of people who are getting into deeper trouble. Some 3.6 million people in the UK are now “debt loaded” which means they spend more than a quarter of their income on debt repayments, and middle income earners are starting to be effected.

The scale of the problem was brought home to me last week when I was talking about this article with friend in a pub. Sitting opposite me with neat blonde hair and getting ready to leave early for work the next day as a middle manager, this highly educated and hard working woman told me she’d been forced to take out pay day loans several times last year to cover basic living costs. She’d not told anyone before then. People we don’t expect are struggling. The middle is getting closer to the bottom.

So what is the way out? Financial education is part of it, but that doesn't help when the cost of living is higher than wages. To make a real difference, we need to make work pay for the bottom half. The Resolution Foundation has put forward proposals for a £2bn childcare programme for example, which Plunkett argues could be funded in part by cutting universal pension credits:

“Part of the problem is that work related costs like childcare and transport have gone up. That’s why childcare is so important, and the living wage. For many families it doesn’t make sense for the second parent to go out to work because it doesn’t cover the cost of childcare.”

None of this is easy. The last government also failed to do enough. But for many outside Westminster the wake up call has already started. Charleen still hasn’t paid the rent. She’s on sleeping pills, and the anxiety is running high. The last financial crisis was built on private lending to insecure individuals. We can't afford the human or financial cost of repeating that mistake. We need to talk again about debt, and this time it’s personal.

Photograph: Getty Images

Rowenna Davis is Labour PPC for Southampton Itchen and a councillor for Peckham

Photo: Getty
Show Hide image

Saudi Arabia is a brutal and extremist dictatorship – so why are we selling it arms?

With conflict in Yemen continuing, it’s clear that we’re failing to moderate the actions of “our despots”.

This year, during Pride week, I noticed something curious on top of the Ministry of Defence just off Whitehall. At the tip of the building’s flagpole hung the rainbow flag – a symbol of liberation for LGBTIQ people and, traditionally, a sign of defiance, too.

I was delighted to see it, and yet it also struck me as surprising that the governmental headquarters of our military would fly such a flag. Not only because of the forces’ history of homophobia, but more strikingly to me because of the closeness of our military establishment to regimes such as Saudi Arabia, where homosexuality is a sin punishable by jail, lashing and even death

That relationship has been under the spotlight recently. Ministers writhed and squirmed to avoid making public a report that’s widely expected to reveal that funding for extremism in Britain has come from Saudi Arabia. The pressure peaked last week, after a series of parliamentary questions I tabled, when survivors of 9/11 wrote to Theresa May asking her to make the report public. At the final PMQs of the parliamentary term last week, I again pressed May on the issue, but like so many prime ministers before her, she brushed aside my questioning on the link between British arms sales and the refusal to expose information that might embarrass the Riyadh regime. 

The British government’s cosy relationship with Riyadh and our habit of selling weapons to authoritarian regimes is “justified" in a number of ways. Firstly, ministers like to repeat familiar lines about protecting British industry, suggesting that the military industrial complex is central to our country’s economic success.

It is true to say that we make a lot of money from selling weapons to Saudi Arabia – indeed figures released over the weekend by the Campaign Against Arms Trade revealed that the government authorised exports including £263m-worth of combat aircraft components to the Saudi air force, and £4m of bombs and missiles in the six months from October 2016.

Though those numbers are high, arms exports is not a jobs-rich industry and only 0.2 per cent of the British workforce is actually employed in the sector. And let’s just be clear – there simply is no moral justification for employing people to build bombs which are likely to be used to slaughter civilians. 

Ministers also justify friendship and arms sales to dictators as part of a foreign policy strategy. They may be despots, but they are “our despots”. The truth, however, is that such deals simply aren’t necessary for a relationship of equals. As my colleague Baroness Jones said recently in the House of Lords:

"As a politician, I understand that we sometimes have to work with some very unpleasant people and we have to sit down with them and negotiate with them. We might loathe them, but we have to keep a dialogue going. However, we do not have to sell them arms. Saudi Arabia is a brutal dictatorship. It is one of the world’s worst Governments in terms of human rights abuses. We should not be selling it arms.”

With Saudi Arabia’s offensive against targets in Yemen continuing, and with UN experts saying the attacks are breaching international law, it’s clear that we’re failing to moderate the actions of "our despots".

The government’s intransigence on this issue – despite the overwhelming moral argument – is astonishing. But it appears that the tide may be turning. In a recent survey, a significant majority of the public backed a ban on arms sales to Saudi Arabia and just this weekend the Mayor of London denounced the arms fair planned in the capital later this year. When the government refused to make the terror funding report public, there was near-universal condemnation from the opposition parties. On this issue, like so many others, the Tories are increasingly isolated and potentially weak.

Read more: How did the High Court decide weapon sales to Saudi Arabia are lawful?

The arms industry exists at the nexus between our country’s industrial and foreign policies. To change course we need to accept a different direction in both policy areas. That’s why I believe that we should accompany the end of arms exports to repressive regimes with a 21st century industrial policy which turns jobs in the industry into employment for the future. Imagine if the expertise of those currently building components for Saudi weaponry was turned towards finding solutions for the greatest foreign policy challenge we face: climate change. 

The future of the British military industrial establishment’s iron grip over government is now in question, and the answers we find will define this country for a generation. Do we stamp our influence on the world by putting our arm around the head-choppers of Riyadh and elsewhere, or do we forge a genuinely independent foreign policy that projects peace around the world – and puts the safety of British people at its core?

Caroline Lucas is the MP for Brighton Pavilion.