Andrew Bailey, the chief executive of regulator the Financial Conduct Authority, has warned of the ticked debt timebomb
In the obsession with Theresa May’s tickly throat as she addressed the Tory Party conference, another speech went almost unnoticed, though it highlighted a huge problem: the £200 billion debt timebomb.
Andrew Bailey, the chief executive of regulator the Financial Conduct Authority, warned City bigwigs at the Mansion House that it is ticking merrily away and wouldn’t take much to detonate.
Jon Cunliffe, the deputy governor of the Bank of England, in similar vein tells the banks to rein in on overexuberant consumer lending in The Mail on Sunday this week and made clear that if they do not, the Old Lady is ready to act.
Households scaled back on their borrowing after the financial crisis but it has been building up again.
The colossal £200 billion sum is in unsecured borrowings, not mortgages pledged against homes – if they were included, the total would be much bigger.
At the moment, we are still at a stage where debt is a problem for individuals. It has not yet mushroomed to the point where it is threatening the banks or acting as a drag on the economy as a whole.
Even if it gets no worse, though, the changing face of debt in 21st Century Britain is exacting a heavy toll on millions of people.
Reckless spenders, who borrow to indulge in a lifestyle they can’t afford, have always been with us, but the evolution of the modern British economy means millions of prudently-inclined people have little option but to become debtors.
Nowadays, debt starts younger, with student loans, and ends older, as pension ages rise and more people take out marathon mortgages over 30 or 35 years instead of the traditional 25.
The nature of employment has changed so that debt for many is an essential survival tool.
Nowadays, debt starts younger, with student loans, and ends older, as pension ages rise and more people take out marathon mortgages over 30 or 35 years instead of the traditional 25
Workers in the ‘gig economy’ have incomes that are insecure and volatile – but the bills keep on coming whether you’ve had a bad month behind the wheel of your Uber cab or not.
Since the financial crisis, wages and salaries have at best stagnated and people have turned to debt to maintain their lifestyles, or just to make ends meet.
Consumer credit is growing at 10 per cent a year, while wages are actually decreasing by 0.4 per cent annually after inflation. Those numbers spell trouble.
Flogging high-cost credit to poor people who are shunned by the banks has been profitable business for the likes of door-to-door lender Provident Financial.
The regulators have clamped down on payday lenders, saving consumers £150 million over two years in the process – which highlights the fact they were being ripped off to the tune of £75 million a year beforehand.
It isn’t just low-income households which are struggling. There is an iceberg of middle-class debt: many a family in well-heeled enclaves from Cheshire to Fulham is just about managing to juggle their finances and living in fear of interest rates going up, which could start happening as early as next month.
The debt problem has not yet mushroomed to the point where it is threatening the banks or acting as a drag on the economy as a whole
There used to be something faintly lacking respectability about being in debt, but that attitude is long gone, at an institutional as well as a personal level.
The downgrading of the UK’s credit rating – because of fears for the economy post-Brexit and worries about the nation’s balance sheet – would once have caused soul-searching but elicited little more than a weary shrug.
And quantitative easing, that vast exercise in printing hundreds of billions of pounds of funny money to encourage the banks to lend, has merely added to the feeling of unreality.
As former Chancellor Norman Lamont noted recently, Mrs Thatcher would have been horrified by the level of the national debt and the deficit, but the current generation of politicians, including Chancellor Philip Hammond, seem to push it under the carpet.
We’ve become a nation of debt addicts, and withdrawal will be painful.