After years of austerity and stagnant wage levels, household debt is taking its toll. Unsecured debt across Britain has reached a new high, now averaging £15,385 per household according to a new report by the Trades Union Congress (TUC), which represents 49 member unions. The report says that unsecured debt now accounts for over 30% of income and totals £428 billion nationwide. Prior to the 2008 financial crisis the figure was £286 billion.
Unsecured debt includes: credit cards, bank loans, payday loans, store cards, purchase loans and student loans, but excludes mortgages.
Unsecured debt per household increased last year by an average £886, according to the research. As a nation, we have become somewhat reliant on borrowing just to make ends meet and the average working family is now worse off than it was before the last financial crisis.
The Bank of England does not include student debt in its figures and the latest reports indicate that half of the TUC estimate comprises student loans and that consumer credit has reduced slightly in the last few years. Head of UK macroeconomic forecasting, Amit Kara, says that student loans are different from other types of unsecured debt, because borrowers don’t actually have to start paying off the debt until their income reaches £21k per annum. Other unsecured debt, for instance a credit card, has to be paid off.
TUC general secretary, Frances O’Grady, said that the government was ‘skating on thin ice’, by encouraging growth in the economy through increased household debt. She said: “Household debt is at crisis level. Years of austerity and wage stagnation has pushed millions of families deep into the red.”
The TUC is calling for a rise in the national minimum wage to £10 an hour which it says will enable people to live within their means and have to borrow less. The current minimum wage for workers aged 25 and over is £7.83 an hour, scheduled to rise to £8.21 in April 2019.
Credit card debt now averages £2,688 per household, inviting a sense of hopelessness as households see debt creeping up while wages stay the same. A strong economy comes from people spending money they have, not by forcing them to accrue additional unsecured debt through the use of credit cards and loans, leaving them nothing to fall back on in hard times.
The Bank of England’s stress tests show that lenders are in a better position than they were before the last financial crisis because there is more of a buffer in the event of a shock downturn. If there is a ‘no-deal Brexit’, the most likely outcome of inflation increases in the near future could be a fall in the value of the pound. Governor of the Bank of England, Mark Carney, has stated that rate rises could happen if we crash out of the EU but the Money Policy Committee might be wary of raising the benchmark too far in case it damaged an already fragile economy.
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