To tackle personal debt we need to tackle inequality first

An inequality test should be applied to all government policies to assess whether they will increase the gap between the richest and the rest.

Today’s report on personal debt from the Centre for Social Justice makes for sobering reading. With average household debt at £54,000, nearly twice the level of a decade ago, it is clear just how many are struggling in austerity Britain.

We’re told that the causes of this astonishing personal debt are people being forced to use credit to pay bills as the cost of living rises, as well as the legacy of cheap credit before the financial crash. These are clearly significant issues, but the reality is that they are part of a far wider, systemic problem. One that many seem unwilling to recognise. The gap between the rich and the rest has widened alarmingly over the past 30 years, with the UK now experiencing one of the highest levels of income inequality in the developed world. Study after study, in both the UK and internationally, has shown that as inequality rises, so does household debt.

According to research by the Joseph Rowntree Foundation, single people need to earn at least £16,850 a year before tax in 2013 for a minimum acceptable living standard. Couples with two children need to earn at least £19,400 each. But according to the ONS, just under half of people don’t get £19,400. About a third don’t get £16,850. For years, people have been told that if they work hard, they’ll get the rewards, but that simply isn’t true anymore. This is partly a result of a greater proportion of UK jobs being low paid. The proportion of jobs classed as low paid by the OECD is now among the highest of developed nations, and around 20 per cent of employees earn below the Living Wage.

Another issue is the increasing amount of insecure work such as temporary work and zero-hours contracts. Being trapped in a low-pay-no-pay cycle understandably plays havoc with budgeting. A further problem is a result of inequality driving up prices. This is most obvious in housing costs, where the average person trying to find a home finds themselves in a market where they are competing with people who are buying second homes, and with investors who are fuelling speculation-driven property inflation. In fact around 85% of new-build properties in central London and 38% of re-sales are estimated to have been purchased by overseas buyers.

Perhaps the biggest problem is also the simplest. Pay for FTSE Director’s may have increased by 14 per cent in the last year, but for the average employee pay continues to fall behind prices. We’ve now had four years of pay falling in real terms for most people. To tackle the debt crisis, the government needs to focus on reducing the UK’s high levels of income inequality. An inequality test should be applied to all government policies to assess whether they will increase the gap between the richest and the rest. Raising the level of National Minimum Wage and incentivising employers to offer jobs that pay a reliable income is a key way of tackling debt, driving demand in the economy, and reducing social security costs.

We also need a more progressive tax system, including proposals like a property speculation tax to stop the rich pricing the rest of us out of a home, but also a fiscal rebalancing away from consumption taxes like VAT, because they hit average and poor people hardest and hold back spending. Inequality is more than a driver of debt, it supresses our economic recovery and fractures our society. If the government wants to tackle debt, it needs to tackle inequality first.

Duncan Exley is director of The Equality Trust

Children play a game of football in front of a residential development in the London borough of Tower Hamlets on February 21, 2013 in London. Photograph: Getty Images.

Duncan Exley is the director of the Equality Trust

Photo: Getty Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.