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Wednesday, September 20, 2017

Our ever increasing debt burden

The Guardian reports that the chairs of two powerful parliamentary committees have urged the government to set up an independent public inquiry into the £200bn of debt amassed by households.

The paper says that the £200bn of debt amassed on credit cards, personal loans and car deals is now at the same level it reached before the 2008 financial crisis and there are fears that rises in interest rates could put more households under pressure. Mark Carney, the governor of the Bank of England, warned on Monday that interest rates were likely to rise in response to rising inflation and skills shortages brought on by Brexit that will increase pressure on wages.

They add that the Money Advice Service believes that there are now 8.3 million people in the UK with problem debts. The government’s official economic forecaster, the Office for Budget Responsibility, has predicted that unsecured consumer debt – which includes loans, credit cards, overdrafts and car financing – will soar as a proportion of national income over the next four years back above its previous peak in 2007.

The two MPs are right to be concerned. The problem has been made worse by the freeze on public sector pay, the general fall in living standards since 2008 and the level of in-work poverty. People are borrowing to make ends meet and the market is allowing them to extend themselves beyond their means.

In my view, the government and the various select committees already have access to the information they need to start tackling this problem. A further review by the Treasury Select Committee may well add to that. I am not sure that the expense and delay involved in  a public inquiry will add much value to the debate on this subject.

As Vince Cable says, “The government must also immediately implement its manifesto commitment to introduce a ‘breathing space’ for people with problematic debt, conveniently forgotten since the election but now more urgent than ever.”

They also need to lift the cap on public sector pay, overhaul the regulation of financial markets and crack down even more on payday lenders and extortionate interest rates. The key to this however is economic recovery. Our economy remains sluggish. We need some investment in major capital projects to kick start it as well as a realisation that if we leave the EU then things will only get worse.
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