Public borrowing has been replaced by household debt

By Bernadette Meaden
July 28, 2018

Last week statistics from the ONS showed that in 2017, UK households spent on average £900 more than they received in income, and accumulated more debt than savings for the first time since records began. In some quarters this was portrayed as people ‘living beyond their means’, just another example of the fecklessness of the lower orders. But the reality is very different. 

As Phil Andrew of StepChange debt charity said, "It’s really unfortunate that this very useful data is so heavily sprinkled with the phrase that households are ‘living beyond their means’. The reality is that too many households, here in Britain, in 2018, simply cannot make ends meet, however hard they try. Not having enough money to make ends meet is not the same thing as living beyond your means – which implies you have a choice, when too many people do not.”

And of course the use of average figures, which include the richest households, disguises (as averages always do) how bad the situation is for those who are worst affected. Amongst StepChange’s clients, for those on the lowest net household incomes (under £10,000), ”an average 93 per cent of their monthly income is swallowed up by the basics, leaving basically nothing for other important items, let alone luxuries. So it is lack of choice, rather than poor choice, that explains why an estimated nine million people last year turned to credit to meet household needs.”

The government and its supporters may not want to admit that so many people are struggling to this extent, but hard-headed money lenders know the score. Loans which in the past were sold as a means of getting a new car or a luxury holiday are now presented as a way to pay for essential expenses. Lately I’ve seen loans advertised as the way to pay for a car repair, so the borrower can get to work, a boiler repair, or a replacement fridge. This is an acknowledgement from business, if not from government, that many people’s incomes no longer cover such basic costs.

As the head of the Financial Conduct Authority said when commenting about young people's growing personal debt “We should not think this is reckless borrowing. This is directed at essential living costs. It is not credit in the classic sense, it is [about] the affordability of basic living in many cases.” And when people on low incomes are forced to borrow to survive, they become trapped in a downwards spiral. Three million households (containing just under seven million people) are now severely indebted – paying more than a quarter of their income to their lenders. 

Austerity has delivered huge cuts to public services and local authority budgets, meaning many secure jobs with decent pay and conditions have been lost, to be replaced by agency jobs, the gig economy and zero-hours contracts. Combine this with a freeze on public sector pay, a freeze and cuts to social security benefits, and we can see how the money in people’s pockets has been reduced as a direct or indirect result of government policy.

And of course, employees are also customers, meaning businesses feel the effect of a lack of spending power, and try to keep their prices down by squeezing wages and other costs. It’s a vicious cycle of money getting scarcer and scarcer for ‘ordinary’ people.

So, through austerity, public borrowing has fallen, but it has been replaced by private household borrowing, with people turning to payday loans and credit cards to pay the rent and buy food

Austerity may have looked like a way to ‘fix’ the economy, and the government may feel it has achieved something by reducing public borrowing. But it is a pyrrhic victory - like neglecting essential repairs on your house to pay off the mortgage early. You have a house but it is falling down around you. Because of austerity the UK’s recovery from the global financial crisis has been slow and weak, with wages and living standards reduced. Public services are at breaking point, homelessness, hunger and child poverty are rising and our economy is floating on a sea of household debt. It reminds me of Tacitus - ‘they make a desert and call it peace’. 

Research recently found that one in six people with money worries had had suicidal thoughts  The government expresses concern about mental health but its policies continue to place people under unbearable financial pressure.

For a society to function properly, everybody needs enough money to at least cover their basic needs. When the government takes too much money out of the economy through austerity it will of necessity be replaced by money from another source. If that carries a high interest price tag, then communities are further drained of the resources they need to stay healthy and to flourish.


© Bernadette Meaden has written about political, religious and social issues for some years, and is strongly influenced by Christian Socialism, liberation theology and the Catholic Worker movement. She is an Ekklesia associate and regular contributor. You can follow her on Twitter: @BernaMeaden

Although the views expressed in this article do not necessarily represent the views of Ekklesia, the article may reflect Ekklesia's values. If you use Ekklesia's news briefings please consider making a donation to sponsor Ekklesia's work here.