Investment advisers Hargreaves Lansdown issued a press release this morning saying:
Debts cost an average of £406 a month – as arrears mount
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The average household spends £406 on monthly debt repayments, excluding the mortgage. Those with mortgages spend an average of £814 on top of this.
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Almost one in ten households (9%) are in arrears. Among the lowest fifth of earners this rises to 27%.
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One in five people are concerned about their debt position.
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Credit card debt is up 12.7% in a year to £68.9 billion and other consumer debt (including loans, overdrafts and car finance) is up 6.7% to £150.4 billion (Bank of England).
The arrears data worries me, as does the increase in credit. But so too does the bigger picture.
There are about 27 million households in the UK. Around £132 billion is being paid by those households a year to service debt interest, exclusion mortgage costs. That is a staggering upward annual redistribution of wealth. And you wonder why I want interest rates to be as low as possible? That's the reason why. Those without wealth are being exploited by those with it, and that is a recipe for an unstable society, which is exactly where we are heading.
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Totally agree.
“Bit” so too does the bigger picture.
Typo there Richard
Corrected. Thanks.
Relying on high interest rates to combat inflation does of course have the added benefit of directly compensating net lenders for the inflation’s erosion of the value of their savings and investments. Not that this is why the rich prefer high interest rates over alternatives like higher tax, of course.
Hmm, implies the rich have been suffering at the hands of inflation. If central banks’ interest rate policies were actually solely about inflation, fair enough, but they are playing a more complex game.
Inflation was just their excuse to do something they yearn for – pump up rates. Good for banks and good for the wealthy. Terrible for everyone else, but no matter. The proof of the pudding…. We’re essentially in a deflationary environment now, record level of debt here and in the US, savings eroded, more people than ever working two jobs to keep things afloat, record levels of corporate debt, consumer and corporate sentiment on the floor, even establishment figures warning of depressions…. And yet the central bankers insist it’s too soon to reduce rates. The mask slips. This is about enriching the wealthy further; there is no meaningful payoff against NPV of debt.
The Bank of Japan has proven the lie, but for some explicable reason the western media won’t go near the inflation/rate shibboleth. That last point alone tells me so much. An obvious truth suppressed – like heroin, the Y2K bug and the Cold War…. Journalists love a good scandal, except one that really challenges the status quo.
This is a late reply but I felt compelled to comment.
Savers do not have a God given right to interest on saving, nor to have their savings “protected from inflation”.
For those people fortunate enough to have spare money they have a free choice whether to save it or spend it. They should not whine that the world is not what they want, that they can’t get supra inflation return on their money, when they already have it pretty good.
It is appalling that so much money is siphoned off by those with money from those that don’t have it. Usury used to be considered a sin. But now some people seem to consider it their right.
And, as discussed elsewhere, those who receive the money then don’t do anything with . But they use the power and political influence it brings to skew the system even more in their favour. The money is taken out of circulation causing, in the absence of other measures (government spending), recessionary pressures.
But I’m rambling. The point is that savers have no reason to expect their savings to be protected from inflation. They can choose to spend the money instead. Their choice.
I agree Tim
“Those without wealth are being exploited by those with it,”, in your blog of the other day, I note that Warren Buffet said the same.
Reducing interest rates would of course, reduce the cost of debt repayment – but this would reduce the flows of money to the rich & as Colonel Smithers (same blog) noted the rich need money to fund courtesans on business class flights amongst other things (mistresses, yachts gosh its tough being rich). Couple this to the tendency of the rich to want to own media (Torygraph & Spectator saga etc) ensures that things stay the same.
Which leaves thje open question: what is to be done?
(pictures of courtesans flying buisness class – with the byline – UK peasants your debt repayments make this happen! keep paying” – whilst the Morning Star might well run with it – I don’t see any other newspaper doing it).
Thank you, Mike, especially for the shout-out.
Working with and for these types, one notices how detached they are from ordinary existences and even the activities that generate their wealth. Their lives feel like a series of social occasions.
It’s interesting how many continental business families* are emulating their Anglo-American peers by selling and living off investments or, if they have not cashed out, delegating management to agents. Many move to London for the social life or chase the sun and snow, something one can observe in “fashionable neighbourhoods”. *London society and its royalty influenced season and amenities gives them the idea that they have arrived.
I would add that the Grauniad, which is owned by a consortium of City banks (after a debt for equity swap in 2008) and investment firms by way of a Cayman vehicle**, performs a similar function to the Mail, Dreadnought and Spectator, vide the persistent neoliberalism and lead in undermining Corbyn. **Donations from readers, Gates and Soros go through a foundation in Delaware.
A decade before he was elected Labour leader, I used to joke that if the public really knew what was going on, Corbyn would be elected president for life by supper.
If I may – adding some petrol to the flames,
once upon a time I was married to a German lady. Her dad was one of the top ten in the world Konditormeisters and his son is one of Germany’s top goldsmiths. Back in the 2000s we saw his work on display in the Kaiserallee in Dusseldorf (they don’t take the stuff away at night cos a ram raider would bounce off the armoured glass). Prices started at Euro100,000 (one of the pieces was a necklace of platinum buckets – each with a half carat diamond). Anyway, order from Munich & the ladies for whom the order was intended – wanted to fly up (private jet – natch) to watch the schmuck (not to be confused with schmuck – think about it) being made. Quite reasonably, my ex-brother-in-law declined (the visit).
Just guessing, but I’m sure prices now started @ Euro0.25m.
How the other 0.1% lives eh! & they cannot even imagine how we live (& by any standards, I consider myself well off).
Colonel Smithers, from this and previous comments it seems to me you have a great deal of contempt for the “types” who you work “with and for”. So I can’t help wondering why you continue to do so? No criticism intended, just genuinely curious.
Dreadnought = ????
Is there a typo with the math. 27 million households £132billion debt interest per month = £4888 per month?
It should be per annum
It doesn’t seem right to assume that all of that £132bn a year is debt interest.
If you are right, then the capital being repaid will be staggering.
And this is without mortgage debts.
Money owed by businesses would show up elsewhere
As would interest paid by the government on its debts.
It’s more than staggering to arrive at £132bn a year in debt interest in fact.
I do rather think you are wholly missing the point.
Is it deliberate?
I have a Lloyds bank credit card with a very high potential balance amount on it. If I use it for online purchases (to protect our main bank account) I just pay it off when I’ve used it.
But I never asked for the £5000 limit they gave me. They just gave it to me.
I also ignore the adverts I get from them telling me ‘Your Credit Card is Here For You’ encouraging me to spend on it, as if it is a living thing concerned for my welfare.
I keep it for emergencies.
It’s a cynical business, debt.
It’s so easy to see why people get into debt so easily when you’ve got vultures circling around you like this.
I think it was Robert Reich who worked out that in America, the amount of debt spending available to Americans was roughly equivalent to the drop in real wages they had experienced.
We are approaching some sort of capitalist nirvana where not only do get over -charged for what you buy, but you also have to use debt to pay for it.
There is nothing sustainable about any of this for anyone.
Ditto
In forty years or more of credit card use I have never yet paid interest
Or got close to my credit limit, except when i bought a second hand car and paid it off straight away as debit cards were not around at the time and they accepted credit cards
I have never paid interest on my credit card either, but I have a relative who got into serious debt problems with his credit card. You may think you can pay it off in a reasonable time but if your circumstances unexpectedly change for the worse, the debt can spiral out of control.
I do the same. Why? Because credit card is best used on the internet, because from the perspective of the user. Why? Because in the digital age, the debit card is the best method to pay, from the perspective of the banker. Why? Because, between the alternatives, which form of security best represents the interests of the bank, and which the user …..
People use banks for access to liquidity and to reduce risk; bankers, however want to convert liquidity into rent, and (if they can), to pass the risk back to the user.
“because from the perspective of the user, the risk is with the credit card supplier”
Could you show the arithmetic behind that £132bn a month figure please?
It doesn’t look right.
Sorry – it is a year
How much of the £406 a month quoted by Hargreaves Lansdown is debt repayment? As that obviously isn’t interest.
So when you say “Around £132 billion is being paid by those households a year to service debt interest”, is that actually correct? Is it all interest? It would suggest actual debt of anywhere from ten to twenty times that amount.
Why not ask them?
Their point is that the burden of debt is rising
That’s my point too
Richard
I asked you, because you claimed that “Around £132 billion is being paid by those households a year to service debt interest” and I thought it would have mattered to you that your claim was accurate.
I stand corrected.
Thank you, Richard.
A decade ago, my counterpart at the credit card arm, both of us at the blue eagle’s nest, and I talked about credit card and car loan debt and how when, not if rates, rose, there would be problems.
Soon after my arrival at the bankers’ trade body* in the spring of 2008, the head of media, formerly at the Treasury, said that, if it was not for overdrafts and other forms of consumer debt, much of the UK population would not be able to pay bills after mid-month.
Not only is this upward transfer of wealth ideal for the powers that be, it’s a good form of social control.
Having worked with government and opposition since the late noughties, other than when Corbyn was leader, I can’t think of a political elite so detached and uninterested in ordinary people.
*Some time before the 2010 election, Cameron, Clarke and Osborne visited us for a working lunch. Cameron “could fake it”, according to Tory activist colleagues, but Osborne could not and looked ill at ease in our company. According to my manager, who was a junior Treasury minister under Major and knew Clarke well, the pair had not changed since they were special advisers, arrogant, ignorant, uninterested and with a sense of entitlement. They still are, by all accounts.
I met Osborne in 2008, pre-crash
He was like an arrogant sxth former
Thank you, Richard.
That’s an appropriate description.
At that lunch, he was awkward in the company of people who knew more than he did and were not intimidated by him. He acted as if he literally wanted the wall to swallow him.
After the trio were escorted out, the bankster leaders, including retired ambassadors working in public affairs, were scathing about Cameron and Osborne.
Some years later, I told that story to a Tory activist and wannabe MP. He said that at events, Osborne and his team would jump the queue to be served. The Tory grassroots despise him. “Cameron can fake sincerity.”
After the Liberals exited government, some Treasury officials left too, not wanting to work with Osborne’s “catamites”.
From time to time, my attention is brought to his podcast with Ed Balls. Who subscribes to that! I notice the pair have New New Labour fans. It figures. Last week, the pair were kite flying the retention of Cameron as foreign secretary, “shooting the Tory fox, and having a “government of all talents”.
The suffering of people and destruction of what was left of the British state, the impact soon brought home by covid, just does not, not did not, register with Osborne. I often think that it’s not just Osborne’s illiteracy that caused austerity, but his attitude, too.
If you think we are done with Osborne, think again. His protege, Rupert Harrison, is PPC for the new seat of Bicester and Woodstock. I have a feeling that this fellow will lead the Tories to power after a term or two of Starmer.
Readers wanting to know more are encouraged to search online for “paste bin” and Osborne. Enjoy, if that’s the expression.
Harrison is dire…
I heard many, many years ago, that Osborne was treated by his ‘peers’, in an offhand and condescending manner; if you will, as an over-ambitious, bourgeois parvenu….
It is all a matter of perspective ….
The further away, the better. The inhabitants of Unst have it about right, if you live in Britain; but there are (I understand, I have never been there); too few trees for my liking.
I agree with the good Colonel’s predictions for Harrison. He skips merrily about Twitter with the air of an heir apparent writ large about him. A reminder that we peasants have little, if any, say in these matters.
https://www.theguardian.com/politics/2024/feb/26/tuc-boss-and-retail-chief-call-for-action-on-wealthy-tax-dodgers
Some people are suggesting what to do. Whether it’s the right thing to do or not, it’s a start. I wonder if some of the patriotic millionaires can give millions to HMRC to pay for more staff.
I hear that Starmer is saying today that his party are going to do patriotic economics. Haven’t quite worked out what he means by that.
We don’t want gifts to HMRC
We want taxes
I suspect £1 billion a year more is required for HMRC – a 20% incraese in its funding
Yes, I know that, but neither main party is going to fund HMRC sufficiently to do the job properly.
Unless, of course, it got about that HMRC is going to be funded by millionaires. Can you imagine the outcry?
Do you have any idea what Starmer’s idea of a patriotic economy means?
He has no such notion
Thank you and well said, Richard.
Plus local offices and seasoned, well trained and well paid professionals. I temped at the local tax over office thirty years ago and saw how they did their best in difficult circumstances, circumstances made deliberately difficult, I suspect.
Jenw, presumably Starmer’s idea of what a patriotic economy means is similar to Xi Jinping’s idea of what patriotic democracy means. In other words it means whatever he says it means.
I think there is a problem with how credit cards are marketed. I have been made offers, completely unsolicited, of credit cards with ridiculously high credit limits, offering a six month interest-free period. This is encouraging people to go into debt. Moreover if you read the small print, which most people don’t, you find that the interest free part of the loan is paid off before the interest bearing part, so you can end up paying a lot more interest than you than anticipated.
Banking is all about wealth extraction. The banks sow credit which costs them nothing but reap spendable currency. It’s alchemy. We are farmed.
The answer is as simple as it is unachievable, given current institutional power balances.
Reduce income and wealth inequalities by increasing real earnings as a % of GDP.
This really ought to be high up any reforming political agenda come the GE, but I’m not holding my breath.
For this rebalancing of money within the economy to even begin, real wages need to increase, at the very least at the rate of inflation, to avoid further erosion.
Junior doctors, eat yer hearts out.
Wealth redistribution downwards can only really happen when earnings distribution is both flattened out, and there are increases across the economy.
The conventional wisdom that wage levels displace investment and growth is wrong as driving wages down proportionately since the late 70s has hardly seen either an investment or a massive productivity boom, just more and more value extraction, share buybacks etc.
The BoE mindset that any and all earnings growth is inflationary, regardless of the actual cause of inflation in the economy, has the long term effect of long term policy deliberately seeking to permanently depress wage growth.
Earnings are then doomed to gradually decrease as a % of GDP, and any productivity growth in any enterprise, or average GDP per cap. growth, will not be reflected in increased wealth for the vast majority of the work force.
That appears to what has happened since 1979, though earnings growth for the top 1% has been off the scale.
Increasing earnings can and ought to reduce the dependency on credit for consumer growth, as well as daily survival. When most economic growth depends on availability and affordability of personal credit, and not investment, then the power of the banking and finance sector is reinforced in terms of overall political economy. I think this stifles innovation.
The con trick of economic growth relying on increased credit availability and personal indebtedness was the key characteristic of Thatcherism and seems to have become embedded since. Artificially created asset spikes still feed this system. And now so many people cannot even afford basics such as housing.
Growth, sustainable or not, will always be stagnant with an intermediary like the finance sector whose interests are not served by investment, but are by both increasing indebtedness and transaction costs for Joe Public..
Neoliberalism then stifles genuine political reform, which will always be difficult with an indebted population, who are always under financial pressures.
No wonder people are angry and/or suffering from increased stress and mental illness.
Helplessness does have all those effects.
I think that increasing real wages is only part of the answer. The wealthy will still hoover up the money, whether it is credit created or earned. It seems to me that what is also needed is preventing the wealthy from creaming off so much (though I can see that cutting out interest repayments would remove one source of their wealth)
I feel that I could dimly see this coming back in the early 1970s with the introduction of what I think was the first credit card, Access. Advertised as ‘Taking the Wait out of Wanting’.
I know that debt wasn’t at all unusual at that period, there was Hire Purchase readily available and the ‘Catalogue’ for clothes and household goods. But unlike the catalogue & HP debts, where actual physical cash was used for repayment transactions (if you didn’t have the cash you couldn’t make the payment), the Access card required a more arms length sort of repayment which seemed to make money les tangible and debt less serious.. I did think that it seemed like a dangerous idea (you see’ even in my 20s I was an old fart.. 🙂 )
What should increase as well as real wages is the personal allowance.
I received my tax code today, and checked back to 2021.
My tax-free amount in 2021 was £3000.
Next year’s will be £400.
That’s a big difference for someone who only has a small personal pension, which hasn’t changed over the years.
The tories are always saying they want people to keep more of the money they earn. To me it seems a no-brainer to raise the personal allowance for everybody to allow that. Or are they lying?
This is fiscal drag at work
A Sunak production
And the high interest rates are meant to suppress wages. Meaning this debt burden will become even harder to pay. If the situation gets worse, then I see no real solution than Michael Hudson’s debt jubilee as the only way out.
We have had MMT for the asset owners but not the rest of society. As the Austrians economists say the asset owners are the real wealth creators. The consequence of such thinking is that we owe them everything we have.
Credit Cards are bad enough.
How about, Gohenry or Natwest Rooster cards.
Helping child learn about money or more than a step too far.
I spoke to HL numbers are “debt repayment” not interest on debt, which is a material point.
High time people recognised the history of this country is mainly one of continuous scamming by elites and especially since the introduction of money. The task therefore is to figure out how best to prevent the scams.
“The concept of debt cancellation and celebration is linked to the Old Testament concept of Jubilee, which meant that every 50 years, people sold into slavery, or land sold due to bankruptcy, were redeemed.” https://en.wikipedia.org/wiki/Debt_Justice
Margaret Thatcher came to office in 1979, so looking forward to 50 years hence in 2029.
Thank you
And the burden is still rising
Which is the point they and I were making
I wish credit unions were advertised more as they can give people cheaper, safer [ie no loan sharks]loans.We need more small community projects to help people and not big infrastructure projects that don’t help less well off people.[I read ‘Small Is Beautiful by is it Schumacher years ago and ‘Less Is More ‘ recently.]
The obsession with GDP is so boring and up or down it never seems to solve our social problems as wealth is never shared out fairly unlike I believe in Norway where, whatever the rights and wrongs of oil , they put income from it towards the general good of society,Our lot would only use it to make a few people/companies richer.The word share is surely the basis of many religions and is what we need. GDP also makes no distinction between good and bad things that make money.
I am very angry about so much;the lack of action on pollution which makes us a laughing stock, the way parasites have made money in the PPE scandal, the way very rich people are given help to become richer when it is less well off people who need help, the lies our politicians tell and so on.Ihave little faith in Starmer as he has back tracked on PR and other issues.
Our whole system needs reform and I feel most of our politicians are too gutless to change much.
I would love to see the Russia Report published as I am sure it would really show the sort of hypocrites we have in government.The Tories say they believe in law and order but what hypocrites they are with their behaviour.Do I need to say more?
Just a few thoughts.I’m not a raving lefty but we need a humane sharing politics.
Out of interest (Ha) I enquired of my credit union about a loan recently. The APR was 42.6%.
Ow….
To be honest, I am not sure that the change in the debt position of households is that surprising. It was in a perilous position and remains in a slightly more perilous position, now. This IS a huge issue but not that new…. Certainly not one that should take policy makers by surprise.
First, if one takes inflation into account, the 6.7% rise in car finance, consumer loans and overdrafts does not look that surprising.
Credit card debt rising nearly 13% is more troubling but even here we need to careful interpreting the data. Remember that even if you pay off your card each month and pay no interest you still have “credit card debt”. If you pay (on average) £2,000 a month to clear your debt then the average balance will be £1,000. Increasing population and use of cards (vs. cash) could account for some of this increase and should not trouble us.
However, if we assume that half of (27mm) households do this then that accounts for £14bn debt. Of course, that means that for the households that do not clear their bill each month the debt is over £50bn spread over 14mm households – which IS a staggering burden. Is this burden due to spendthrifts living life on the hog? No, it is people taking on debt to eat/heat/cloth themselves…. who are then paying usurious interest rates.
No wonder 9% are in arrears and you are right to identify this as a real problem.
The solution must start with a recognition that monetary policy is not just about setting a Base Rate and stepping back. Controls on Credit card interest rates, controls on the amount of credit granted should surely be part of the Central Bank’s tool kit.
As usual, a simple proposition is actually complicated. Those of us who clear every month simply use a credit card for security reasons in internet transactions. It is a function of the regulations for internet transactions, and personal risk management; something that does not seem germane to the debt issue, but as a result of unintended policy consequences distorts the figures. The implication is that the underlying facts may be worse than the apparent trends.
Something sad but also positive has occurred to me in all of this.
It is quite clear to me that there is a form of ‘societal populism’ in our country whose needs are not being met and actually ignored. Even in Ashfield and other hard bitten communities – outsiders might be treated with disdain and contempt but if you are a member of THEIR tribe, you may well be looked after and looked out for.
We know that the same exists in America where government policy is out of whack with the American people – they are more Left, more – dare I say it -‘socialist’ than their government. Government policy there has been driven/dictated by the rich for a long time and is the way we are going in the UK (or ‘gone’ even).
This ‘social’ sentiment has existed in human societies since we came into being as species and was a way in which societies were ordered. There was a populist angle to the societies that Michael Hudson uncovered in ‘Forgive Them their Debts’ and David Graeber (RIP) has also explored these themes as well as others (‘debt’ was really about obligation to each other and these ‘obligations’ acted like glue for societies.
The ordering of these societies that had debt jubilees, even the way in which the Chinese ruled through the Guanzi and intervened in markets to keep the people happy – had a populist design to them to me. And they were logical.
For if your ruler looked after you, you were more likely to honour him/her, the temple, obey his/her laws, contribute to great works and civil engineering projects and most of all fight to protect that which both you and he/her valued when required to. Such populism meant that both the ruled and ruler had skin in the game. It was a natural feedback loop of obligations and reinforcement to each other.
That seems like a fair deal to me. It sounds like an ideal sort of populism – a sort of ground-up populism. And a very positive form of populism it is to be honest – mutually beneficial , although abhorred by people like von Hayek, Friedman etc.
It seems that what is being foisted onto us these days is a ‘top-down’ populism that is negative in nature and meant to be used to divide us only because there are more of us than them. And this is proving to be rather successful.
But there is no doubt that we need to return to the positive ‘societal’ populism that got us this far as a species and turn away from the false and exploitive populism of vested interests.
Von Hayek, Friedman and Buchanan were all wrong. Hitler was wrong to abuse populism as he did – uniting people by their hates and gripes. But don’t throw populism out with the bath water. We must take it back as a society – re-take it, claim it.
We need a better populism based on a shared belief in a better future, shared goals and shared attitudes based on what got us this far – kindness, compassion, empathy, co-operation, discussion, support – all of these strategies to enable human life.
The raw materials are there, but they are being subjugated by a political system in hock to minority vested interests. Never forget that they are minority.
But this is why this blog remains so important to me, because it is where the positive populism of the people can be nurtured and curated for when the time might be right. We may need it again in the future. I hope so.
I think this just to try to keep me going as we take the deep dive into this perverted form of populism that seems to be dominant at the moment. Where we are treated like shit but still expected to show fealty to our abusers with false notions of nationality and loyalty and like debt itself – financialised.
Thanks for reading.
Thanks
Commenting on the failure of the personal allowance to keep up with inflation:
Richard ‘Murphy:
“This is fiscal drag at work. A Sunak production”
Commenting on a proposal to increase the personal allowance to keep up with inflation:
Richard Murphy:
“Please not another increase in the personal allowance”
https://www.taxresearch.org.uk/Blog/2014/08/15/please-not-another-increase-in-the-personal-allowance/
What is the probability of you publishing this and owning your hypocrisy?!
There is no hypoicrisy in my position
I remain convinced that non-inflationary increases in the PA were a bad idea when funds could have been much better targeted to those in need. As it was, much of that increaase helped the ebtter off.
But you might have noticed inflation, and the fact that the effective rate of PA has been reduced without compesnation for thosee in need and that, therefore, the reversal is nothing akin to the reason for objecting to the increase.
But thinking is a bit much to ask of people like you, isn’t it?