If you’ve been listening to government ministers recently, you’d be forgiven for thinking that our current economic position was one of relative health. However, the UK’s economic stability is, in part, propped up by huge unsecured household debt. And this is a serious cause for concern. A new report shows that the average UK household debt hit record levels in 2018, with the Conservative government entirely complicit in the sharp rise. The Trades Union Congress (TUC) report showed that the eye-watering levels of unsecured debt are a result of a catalogue of failures from the Tories and we’re now hitting ‘crisis levels’.
Unsecured household debt is any household debt except for mortgages. The TUC’s annual report showed that the unsecured debt in UK households rose to a huge “£428bn in the third quarter of 2018”. This is worryingly high in comparison to the £286bn peak before the financial crash in 2008. Unsecured debt as a share of household income has peaked at 30.4%, its highest level ever. Even higher than the 27.5% peak in 2008.
Households now owe up to £886 more than they did last year, with UK homes on average owing banks, credit cards and other lenders £15,385.
The TUC report cites “government austerity and years of wage stagnation” as the key reasons behind the debt increase. The report states that as a result of this, “millions of households are reliant on borrowing to get by”.
TUC general secretary Frances O’Grady said:
Household debt is at crisis level. Years of austerity and wage stagnation has pushed millions of families deep into the red. The government is skating on thin ice by relying on household debt to drive growth. A strong economy needs people spending wages, not credit cards and loans. Our economy is not working for workers. They need stronger rights and bargaining powers. Trade unions should be allowed the freedom to enter every workplace to negotiate higher wages.
The rise in unsecured household debt is a key reason why the economy looks OK to some people at the moment. However, without a lower cost of living and individual economic revival, this borrowing bubble won’t last long term. And the government facade of economic prosperity is equally concerning. Dominic Raab recently boasted of the fastest rise in wage growth for a decade. However, as The Canary reported, wages have actually stagnated over the past 10 years with average weekly wages being higher in 2008 than they are now 10 years later. The actual cost of living, as a result, has soared – and millions of people have now been forced into poverty. As the TUC stated, this is a primary reason for the increase in borrowing and household debt.
Also, the Tories have gloated that “more people are in work than ever before”. But what this doesn’t explain is that as of 2018 there were 901,000 people working zero hour contracts as their primary job, which makes up 2.8% of all employed people in the UK. Overall, 1.8 million work zero hour contracts, which is why employment figures are at the level they are. This insecure employment forces people to borrow. And then they face further insecurity to pay back the mounting debt as their income isn’t guaranteed.
The debt figures also include student loans. with tuition fees rising to £9,250 per year in 2017. The extortionate rise, coupled with rising student loan interest rates, means many students will never pay off this debt. Research from the Institute for Fiscal Studies (IFS) showed that around 83% of graduates will have part of their debt written off and only 17% will pay it off fully.
How can we fix household debt?
The TUC stated that the government “prioritised corporate tax cuts over public sector pay”, arguing that “most public sector workers have seen the real value of their pay cut every year since 2010”. It says that public sector workers “must get restorative pay increases”.
The TUC has also called for the minimum wage to be raised to “£10 as quickly as possible” and that trade unions must have the freedom to operate in all workforces in order to “organise collective wage bargaining”.
The TUC also asserted that UK investment is far too low, stating:
The UK must increase public investment to at least the OECD [Organisation for Economic Co-operation and Development] average, and establish a National Investment Bank with a remit to target communities most in need of better-paid work
Labour proposed a National Investment Bank in its 2017 manifesto which would “deliver £250 billion of lending power”.
Unless people’s wages increase, the cost of living decreases, and unpayable student loans are reduced, then we face a serious impending economic problem. And the poorest and most economically vulnerable people will be the most affected. People simply can’t afford to pay back loans. Especially when they get pushed further and further into poverty because of them. This facade of economic prosperity isn’t sustainable. We need accountability, real change, and a government with the guts to stand up for ordinary people.
Featured image via Pxhere
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