Chancellor is relying on credit card spending to maintain growth – TUC

Figures predict a sharp rise in household debt

Figures predict a sharp rise in household debt by the end of the parliament (Rex Features)

The TUC has accused the Chancellor, George Osborne, of expecting families to "bail out his faltering recovery on their credit cards" in the wake of figures predicting a sharp rise in household debt by the end of this parliament.

It comes following sharp criticism of Labour’s record on household borrowing made by the Tory MP Mark Garner in the House of Commons last week.

Mr Garnier, a former banker and hedge fund manager and a member of the Treasury committee in the last parliament, told MPs that the subject of debt was “incredibly important”, arguing that debt “is not just national; there is household debt as well”.

He then said: “Does the Chancellor agree that the £1 trillion rise in household debt between 1997 and 2008, taking it up to £1.47 trillion, was one of the most pernicious acts of the Labour government?”

The Chancellor described Mr Garner as “right”, but while household debt fell in the years following the financial crisis, the Office for Budgetary Responsibility (OBR), which Mr Osborne set up, believes that it will be back to record levels as a proportion of household income by the end of the current parliament.

According to its projections, debt is set to rise to 171 per cent of household disposable income by 2019, compared to 168 per cent in 2007, which was during the peak of the borrowing boom that had built up just before the financial crisis forced lenders to turn off the taps.

If the forecasts are correct, debt will increase at two and a half times the rate of wages, and unsecured debt will average £25,000 by 2019.

Recent figures from the Bank of England and the Office for National Statistics have also shown that unsecured borrowing – credit cards and personal loans – is again moving up in line with the OBR’s projections.

Frances O’Grady, general secretary of the TUC, said: “In a healthy economy, workers’ wages grow faster than their debts. But pay rises are still well below their pre-recession trend, and current gains are only because of global factors causing exceptionally low inflation.”

Ms O’Grady called for a “better plan” than expecting families to rescue the recovery through borrowing on credit cards or personal loans.

“His plan to cut tax credits will only put more pressure on working families to borrow to get by. What we really need is a wages-led recovery, not a debt-fuelled bubble. The Budget next month should take advantage of near zero borrowing costs to invest in skills and infrastructure, which will give a long-term boost to productivity and wages.”

Last week the Chancellor gave the first details of where cuts planned for public spending will hit. He will unveil his emergency Budget next month.