To put this in context, there are about 33 million taxpayers in the UK. There is likely to be a big overlap between those paying tax and those struggling with bill payments (although it will not be a perfect correlation). This data suggests in that case that maybe 30%, and certainly more than 25% of people in the UK are now struggling with debt.
The UK government is imposing austerity to supposedly contain its own debt. The consequence is, however, clear. There is a looming private debt crisis of epic proportion in the UK. And the government would appear to be entirely indifferent to it.
Having a poor credit record is financially disabling in the UK. It imposes very real costs. Too often it denies people access to essential services, including housing.
With so many in the economy in stress, a breaking point where payment ceases to be an option for many is inevitable. Then the crisis moves from the person owing the debt to the person due it. They might be a utility company. They could be a landlord. But as the FCA makes clear, they might also be a bank or other credit company. And debt crises on this scale could have a serious impact on all of them.
What is the solution? Most glaringly obviously it is to encourage the payment of inflation matching pay rises. Anything less does, because of the cumulative nature of percentage change based pay negotiation, guarantee reduced worker incomes in perpetuity. That in turn guarantees continued stress with debt. The government could lead the way on this. It isn't. The responsibility for this crisis belongs to it as a result.
What else could be done? Interest rates could, of course, be cut. They have no impact on the current type of inflation we are suffering. There is no chance that any interest rate change now will perpetuate inflation because the likelihood of inflation's decline is now pretty much hard-wired into the economy.
But, according to the Bank of England the decline in interest rates is not similarly hard-wired in. Instead they hope to keep interest rates at or near existing levels for some time to come. Doing so will turn current negative interest rates (calculated by comparing interest due with the prevailing inflation rate, which means rates are negative now, as they have been for some time) into strongly positive interest rates over the next year or two, resulting in the real burden on those in debt being likely to increase considerably over the next few years.
This is an economic policy intended to create economic catastrophe as a consequence of a personal debt crisis, as it surely will. The remedy has to be a cut in interest rates.
Millions are living with wholly unnecessary and ultimately catastrophic debt crises in the UK at present. The government, regulators and Bank of England know that. If they do nothing to alleviate this by promoting wage increases and interest rate cuts what does that say about the intentions of the politicians who fail to act, which neither leading political party appear inclined to do? Is their behaviour malign, or based on ignorance? Since the latter is no excuse it must be the former, which Bank of England comments appear to confirm.
We live under the curse of a despicable economic philosophy that is apparently indifferent to the fate of the real people whose well-being it destroys. I am sure there are worse things to suffer. But when this philosophy is adopted by choice and not necessity, maybe there aren't that many that are much worse, and those that are have been on display from the far-right over the last few days.
We live in desperate times.
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Hello Richard,
We live in desperate – your last sentence stops in mid-flow
Angus
An editing mistake – sorry
I kinda liked it before the edit 🙂
We live in desperate –
🙂
…times’ (your post does not quite finish but in no way undermines the power of the message).
Along with everything else, this also shows us that our housing/accommodations costs are also too high in this country as a proportion of income. The Tories long ago abandoned rent controls in the belief that it would incentivise the private rented sector – and it did – through greed.
I keep wondering when will the people of this country will put two and two together and realise that this is very expensive country to live in because of successive Tory governments and Tory-like policies.
In my line of housing development work, we are finding that the water supply is being further disaggregated by yet more privatisations under the guise of NAVs.
The result – absolute chaos when it comes to finding out about your water connection and design standards. Does Mike Parr know anything about these? Ofwat have ‘created a market within a monopoly’. But the result to water users is yet more hard work to find out who owns what. The result is a market where it is not needed really – but a market has been created and that’s all that matters.
And you would have thought by now that we would not even be doing this sort of thing because of the railways and sewage in our rivers but they still are. Instead we get told that we need to protect our ‘national identity!!’.
It’s just total bullshit out here. The long march to total marketisation is alive and doing well it seems to me.
https://www.ofwat.gov.uk/regulated-companies/markets/nav-market/
The aim is simple enough to allow investment to balance demand whilst also facilitating a desire to save. Putting this into effect is not easy it requires knowledge of the parameters involved to which we must look carefully for the work of economists who actually understand this, and these would appear to be Keynes, Minsky and Godley.
For example, the flip side of a government surplus or moving to one (holding the foreign balance constant) must mean by identity non-government balances become precarious. This is Economics 101 or should be but there appear to be absolutely no political parties in the UK that make this one of the central planks of the creed they believe in and repeatedly broadcast it to voters!
“We live under the curse of a despicable economic philosophy that is apparently indifferent to the fate of the real people whose well-being it destroys.”
We live under an ideology (markets), whose proponents, when faced with facts which undermire their ideology (markets), switch on their cognitive dissonance and ignore reality. Something has to give and one hopes we are living in the last days of “Hayekian thought” (I use the phrase losely) – it was brainless right from the start – but convenient for those that wanted a society split into untermenschen and elites – which is what is happening in the Uk and increasingly in other countires (please don’t think it is all peachy in the EU)..
Cut taxes is one solution
It is
I agree.
One technical point…. I think real rates are already high (we don’t need to wait to see this). The real rate is the nominal rate less the rise in prices over the period that the rate covers. Now we don’t know exactly what inflation will be over the next year but we should use estimates….NOT today’s inflation rate whìch is all about last year.
The BoE surely understands this; they also understand the lags of policy….so it really is wilful destruction rather than stupidity.
True
I stand corrected
Just saw this:
“The FCA said the number of adults in Britain who missed payments on domestic bills or failed to meet any of their credit commitments in three or more of the six months to January rose to 5.6 million from 4.2 million in May 2022.”
https://www.marketscreener.com/quote/currency/US-DOLLAR-RUSSIAN-ROUBL-2370597/news/Nearly-6-million-Britons-missed-payments-on-bills-regulator-says-43869581/
Which confirms the points made in the blog. Things are just getting worse.
Two things ought to be obvious to politicians and voters (but they aren’t!)
Firstly, that the government needs to ensure adequate demand by establishing a Living Wage for the employed and unemployed, (ideally with a Job Guarantee programme for maintaining employability and teaching new skills for the latter category). For the employed category in the private sector the Living Wage needs to be rigorously enforced by government.
Secondly, that this Living Wage is not undermined by the government attempting to balance its books or worse run a surplus on them. Two reasons for this; the Living Wage needs to be sufficient to meet the desire to save to some level so taxation shouldn’t undermine this, neither should taxation be so great that it forces citizens into debt through loans in order to maintain the living standard they have.
A hidden fact is that neoliberalism requires a basic living wage so that workers can choose their employment as required by the MARKET. In addition, in the case of a shortage (nurses) then neoliberalism requires an increase their wages to increase the supply of labor.
My conclusion is that the Tories do not believe in neoliberalism and are only using it as an excuse to please their pay masters and grab as much money as possible.
On the subject of the BoE’s interest rate policy, a whimsical tale: https://thepoundinyourpocket.org/2023/05/16/the-bank-of-england-interest-rate-rises-by-the-late-charles-dickens/
“With so many in the economy in stress, a breaking point where payment ceases to be an option for many is inevitable. Then the crisis moves from the person owing the debt to the person due it. They might be a utility company. They could be a landlord. But as the FCA makes clear, they might also be a bank or other credit company. And debt crises on this scale could have a serious impact on all of them.”
Don’t forget that electricity companies jump the debt queue by fitting pre-payment meters….