Is the government privatising the debt?

Kevin Gulliver is the director of Birmingham-based research charity the Human City Institute and chair of the Centre for Community Research; he is writing in a personal capacity

The strong moral as well as economic stance taken by the coalition government and key supporters such as the TaxPayers’ Alliance towards public debt is in sharp relief to their attitude to debt amassed by households.

The coalition’s aim of eliminating the public deficit over this parliament because can be contrasted with the cavalier attitude of the Office of Budget Responsibility (OBR) to personal debt. What is happening explicitly with higher education – reducing public expenditure by increasing private debt – appears to be happening across board to reduce the deficit.

Household (personal) debt has increased massively over the last two decades from around £400 billion in 1993 to £1.5 trillion today, representing a rise of 275 per cent in contrast to a mere doubling of Gross Domestic Product (GDP) over this period.

While there has been a ‘plateauing’ of personal debt during the last three years, the OBR predicts that personal debt will begin to grow again from 2011 onwards. Indeed, the OBR’s economic growth forecasts for 2011 to 2015 actually depend on an increase in personal debt. With the Bank of England reducing growth projections and up-scaling inflation forecasts, growth will be even more dependent upon personal debt rising.

By 2015, the OBR projects that personal debt will equal 175% of household income – up from 160% in 2011 – to reach a projected £2.1 trillion – an increase in personal debt of two fifths in just five years. In effect, the UK will be ‘privatising’ debt by transferring from the state to people to support economic growth.

Already, average household debt in the UK is almost £58,000 (including mortgages); if the OBR’s predictions are realised than this will grow to more than £81,000, as new research from the Human City Institute shows.

This growth in personal debt will be a particular problem for low income households, many of whom live in the social housing sector. More than one third of tenants in HCI’s survey of debt and exclusion say their financial circumstances are poor or very poor and a similar proportion are currently in debt.

A quarter of tenants describe their debt as high or very high. The average debt level is £1,200 – equating to 24% of median income – yet close to half have debts of more than £1,000.

A significant minority of tenants have to go without necessities, such as food and heating, on a regular basis to meet their debt repayments with close to half saying this is an occasional requirement. Of tenants in debt, 28% say they are finding their debt level increasingly unmanageable.

Significant minorities of tenants in debt rely upon credit from high interest lenders such as pawnbrokers, mail-order catalogues, legal money lenders, payday loan companies, discount stores and illegal door-to-door lenders.

Adding growing personal debt to the range of welfare changes the government is implementing, and the persistently high unemployment and state retrenchment from local services, indicates vulnerable communities will face a bleak future.