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With consumer borrowing at an all time high, is Britain steaming towards a debt disaster?

A TUC analysis has found that unsecured debt had run up to £15,400 per household by the third quarter of 2018

James Moore
Chief Business Commentator
Monday 07 January 2019 14:23 GMT
Borrowing boom: Unsecured consumer debt, such as that racked up on credit cards, is at an all time high
Borrowing boom: Unsecured consumer debt, such as that racked up on credit cards, is at an all time high (REUTERS)

With the bills from Christmas starting to land on Britons’ doorsteps, the TUC has issued a timely reminder about the scale of the nation's addiction to turning to lenders to address them.

Its analysis reveals that unsecured debt had run up to £15,400 per household by the third quarter of 2018, an increasr of £886 over the previous year. We're literally mainlining the stuff.

The figure excludes mortgages but includes everything else; so credit cards, personal loans, payday loans, and, it’s important to note, student loans are all in there.

The Bank of England leaves the latter out of its calculations, which is why its figures come out lower.

But student loan repayments start when people earn as little as £21,000 and take 9 per cent of anything those burdened with them earn above that. They thus constrain living standards and make people paying them back prone to other forms of borrowing to make ends meet.

I therefore lean towards the TUC’s view on their inclusion.

With them in the mix, the total comes out at £428bn. To put some context on what would otherwise just be an unfathomably big number, that's more than three times what it costs to run the NHS in England, the 2017/2018 budget for which was just under £125bn. It’s more than four times the £90bn education budget. You could cover the £6.2bn cost of Britain’s two Queen Elizabeth aircraft carriers 69 times.

So that number is actually rather scary. Using the TUC's methodology, it's also well above the £286bn the pre financial crisis peak, and now represents a staggering 30.4 per cent of household income.

It's worth remembering too that that number covers just the third quarter. Any additional borrowing to pay for Christmas isn’t in there.

The Bank has pointed out that its growth is at least slowing. But it was still running at an annualised rate of 7.1 per cent in November. So that's about as comforting as being told your toes are ok after breaking both legs.

How to address the problem? A higher minimum wage, part of the TUC’s prescription, could help. It would be far better for people to spend their own money than someone else's. The best way to facilitate that is to get more money into their pockets.

You wouldn’t be surprised to hear general secretary Frances O'Grady calling for more power for unions to bargain over pay. There’s been a modest pick up in its growth recently, but given the near full employment Britain enjoys it ought to be increasing at a faster clip. Part of the reason for it not doing that is that workers lack bargaining power.

Give the economy a job with more investment? Sure. Some more investment for organisations like the Money Advice Service wouldn’t hurt either. But before you can do any of that, or even consider alternative solutions, the Government actually needs to, you know, wake up to the problem.

Thing is, all that borrowing has helped to keep the economy just about growing while the Government has been messing around with Brexit. So you can see why its motivation to act might not be all that strong. The trouble is, when you look at the numbers the word "unsustainable" keeps coming to mind. We could easily be approaching a tipping point, and the last thing you need when you're creating a godawful mess is another one like that. But it's what ministers are going to get.

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