Anthony Hilton: Recovery will tip many families over the edge

At a media breakfast on Tuesday Andrew Sentance, the in-house economist for Pricewaterhouse-Coopers, pointed out an oddity in the national income figures.

The perception is that household income has been under huge pressure for the past few years because wage increases have not kept pace with inflation.

But the Office for National Statistics says that disposable income has actually increased in three of the past four years – by 1.65 per cent in 2009, 0.7 per cent in 2010, falling by 1.2 per cent in 2011 and recovering 1.4 per cent in 2012. The 2011 fall was caused by that year's increase in VAT to 20 per cent.

If earnings are falling but disposable income is rising, where is the money coming from? Well debt and benefits is the answer, as is borne out by the soaring cost of housing benefit, which now eats up £21bn a year.

Successive governments have tried to turn Britain into a low-wage economy. They have succeeded so well that half the nation's households now have to be subsidised by the other half via the state.

Politicians, meanwhile, are agitated about payday loans and the interest rates they charge. Clearly there is much to be concerned about, but railing against payday lenders is to fall into the trap of attacking a symptom not a cause. The payday loan business is booming only because more people cannot make ends meet.

The Money Advice Service yesterday published a survey of Financial Capability in the UK. The good news is that people are slowly developing what the MAS calls "positive money habits".

But the bad news is that 52 per cent of those surveyed say they struggle to keep up with their bills and credit commitments. The last time this survey was conducted, in 2006, 35 per cent said they had such problems. The proportion of people on a knife-edge with money has increased by almost a half in seven years.

There is a huge problem here that none of our leaders wants to talk about. Dalton Philips, the chief executive of Morrisons, said the other day that a third of his customers were one pay cheque away from bankruptcy.

Legal & General in a report on Thursday told a very similar story and highlighted that across the country 37 per cent of households have no savings at all. Even in London, where savings are the highest, the average family could survive for just 34 days if it lost its usual source of income.

According to another survey this week from RSM Tenon, personal bankruptcies are at very low levels. But when interest rates begin to edge back up as the economy recovers, the cost of being in debt will soar. When that happens how many households will be pushed over the edge? It is hard to see how a return to normal times can end in anything other than disaster for a significant swath of the population.