Britain's other, bigger debt problem

Perry

Thanks Peter, - important that this Brownian legacy is not forgotten or expunged by the political air brush. Please keep grinding away at it.

Strange that the UK seems to owe its 'prosperity' to debt. Stranger still that so many were charmed and fooled by the Brownian debt bubble. Another reason why the 'person' and his hangers-on should face censure.

I must go now before my rage reaches flash point.

John Mayne

Gosh. The Spectator is now hiring (former) prostitutes for insight into the UK's economic problems. Whatever next?

Sir Graphus

The problem remains, because everyone thinks that economic prosperity can be gauged by GDP, which is only true if you really want it to be. GDP can also show the rate at which a country is spending its way to oblivion. When I were a lad, the news used to quote the balance of payments figure every month. That's the number that says whether we're wealthier or poorer every month, and I imagine it's too depressing to print, now.

The easiest way to increase GDP is to get the High St booming again, and "consumer confidence" up. "Consumer confidence" is, of course, a euphemism for the amount they worry about credit card debts, or, their confidence in running up even more credit card debt.

DavidDP

"I borrowed £800 to go on holiday"

I didn't have the money to go on holiday. I didn't go on holiday. Problem solved.

Rhoda Klapp

I note from the graphs that the public is doing a lot more about its debt than the public sector. I wonder what the trends would look like if brought up to date. I think this article is about three years late.

Challenge for commenters: What is going on now which Pete will catch up to in three years time?

Hugo Chav

Peter,

What is most shocking at the moment is the truly awful economic forecasting from the BoE, Treasury and OBR.

I'm left wondering if they're just pure economic propagandists.

Nadeem Walayat who is an econo-blogger has a far superior track record and he's just one geezer in Northern England.

John Montague

Interesting subject, interesting graphs, Mr Hoskins. I'm glad you put in the rider about mortgage debt, because what I'd like to know is what percentage of GDP our non-asset backed debts come to, compared to the equivalent ratios for France , Germany and the US. Is there any way of finding out just what percentage of the debt on your graph is accounted for by investment in property, shares and other realisable assets, there and here?

les

I can't get past "I borrowed £800 to go on holiday" from a loan shark!

Hexhamgeezer

With loan sharking it pays to shop local. Those TV firms typically charge 4,000+ p.a equivalent. While a good local 'payday' loan bloke will restrict himself to the 1k -2k p.a. range.

John Wood

"When I were a lad, the news used to quote the balance of payments figure every month. That's the number that says whether we're wealthier or poorer every month, and I imagine it's too depressing to print, now."

It is available from the ONS - in fact the deficit has now reduced slightly but it was massively in the red during the Labour 'Bubble Years' as the country bought stuff on credit. (the money left the country making us all poorer - but the banks kept replacing it with new loans - we are now reaping the results.)

Of course the BBC realised that the figures would be embarrassing for the Labour Government so stopped reporting them. They may start reporting them now to embarrass the Coalition.

Fatbloke on tour

PH

Love the Torygraph angle on the debt issue, big picture of a well turned out middle class slapper.

However any chance you could take the issue seriously?

Any chance you could split household debt into secured / mortgage and non secured debt, it would be interesting to see how things have changed over time?

Also a comparison with the situation that developed between 85 - 95 would be worth a look.

However all of this is just the starter to the main course regarding household debt and the "recovery", any thoughts on doing a story on debt taking into account the projections being put forward by the OBR over the next 4/5 years?

Some thoughts on how their projections which see household debt ballooning significantly and whether or not this is:

a) A good thing?
b) Credible given current attitudes?
c) A fig leaf to make the OBR's books balance?

I fear the Tory Party will be in need of not a Plan B but a Plan DD when the two privately educated muppets now in charge run out of economic credibility and media friends as the economy staggers from one dog boiling disaster to another?

Just what would get Sniffy the sack?

3 mill unemployed?
Double dip recession?
Rising deficit?

Yam Yam

A "married actor" who has slapped her with a superinjunction?

You mean that guy who shares the same name with a Triumph motorbike?

normanc

Here's a radical idea, one a right leaning mag may have been able to come up with.

Tax the public less, leave them with more of their own money in their pockets, and they will need to borrow less?

Imagine 20% off the price of everything in the shops, imagine 20% more in your pay packet each week, imagine petrol 40p a litre less.

The theft of the majority of our earnings by government is what you should be getting on the moral high horse about.

Michael

Agreed. There is an article in the business section of the Telegraph today expressing concern about the large increases in people using interest only mortgages. Goodness knows what they will all do when interest rates start rising: increasing numbers of them also appear to have been put on 'interest only' by their banks in order to avoid repossession.

oldtimer

You say "The solutions are not easy, nor even obvious."

I believe the solutions are obvious, if not always easy. They are spend less and save more (to pay down debt). The solution is not helped because taxation is too high and that is stultifying economic growth. The last budget was a missed opportunity in this respect. Politics triumphed over economic sense.

Edward

Sir Graphus, good point. We must also remember that in a normal, healthy economy, high consumer spending is a result of greater prosperity, not a cause.

Nickle

The majority of private debt is secured against property.

The press plays the government game on public debt and assumes that government borrowing = government debts or liabilities.

That misses of civil service pensions, the state pension, the state second pension, guarantees to banks, to railtrack, to old state industries pension schemes such as BT, for nuclear decommissioning...

Private debt isn't an issue bar a few misfortunate or stupid people. State debt is.

Scary Biscuits

From the graphs it seems that, in the US and UK at least, the public are behaving quite sensibly. The cost of debt has rocketed and they are deleveraging themselves quite rapidly. On current trends we'll be back to pre-bubble debt levels by about 2015 - pretty good. Much more worrying is government debt, which is on a massively steep increase and shows no sign of even slowing down (the latest government figures showed an acceleration). Worse this government debt now includes semi-nationalised private debt, usually of the worse sort, ie the ones who are not deleveraging or who can't.

Interestingly, apart from the tradionally prudent nations such as German, the rest of Europe and Canada are carrying on as though nothing has happened. Tell me that isn't going to end in tears?

Frank Sutton

"Take today's story about the relaxation of mortgage restrictions for first-time buyers..."
No, Mr Hoskin, Making it easier for first timers to borrow 95 per cent of inflated house prices isn't giving them a "leg-up".

It's just encouraging them to get into more debt.

It was easy credit that fueled the housing bubble, remember.

Fatbloke on tour

PH

What is the story?
Are you getting a bit thin skinned?
Or can your legals not understand the place of humour in the description "well turned out middle class slapper"?

Oh well back to the economics:

Any chance you could take the issue seriously?

Any chance you could split household debt into secured / mortgage and non secured debt, it would be interesting to see how things have changed over time?

Also a comparison with the situation that developed between 85 - 95 would be worth a look.

However all of this is just the starter to the main course regarding household debt and the "recovery", any thoughts on doing a story on debt taking into account the projections being put forward by the OBR over the next 4/5 years?

Some thoughts on how their projections which see household debt ballooning significantly and whether or not this is:

a) A good thing?
b) Credible given current attitudes?
c) A fig leaf to make the OBR's books balance?

I fear the Tory Party will be in need of not a Plan B but a Plan DD when the two privately educated muppets now in charge run out of economic credibility and media friends as the economy staggers from one dog boiling disaster to another?

Just what would get Sniffy the sack?

3 mill unemployed?
Double dip recession?
Rising deficit?

Rhoda Klapp

It seems to me that householders are reducing their debt. If they are following sensible advice, it will be highest interest first, that means credit cards then personal loans, then mortgages. Anybody have data on how this is shaping?

But what we are seeing now is calls for consumer spending as a sign of recovery. It does not make sense for any individual consumer to change a policy of retrenchemnt to one of spending freely at this time. That recovery will not be forthcoming, and I am not sure it would be a good thing if led by consumer spending. The high street shakeout will continue. In my opinion it will get worse, because the economics of a high street shop no longer work, and those who could affect the situation are not prepared to do so. Just how much of retail spend is based on people buying items they do not need and will not use? Quite a lot, IMO. This is the classic coyote problem. So long as we keep running, and don't look down, we won't know we have run off the cliff.

Tiberius

Careful, Pete, or you'll be doing a bit of a Ken Clarke. Can prostitution be an escape from anything?

PuppetMaster

Don"t forget about corporate debt, British companies are the the most indebted in Europe. It works really well on the upside of a credit bubble, not so good on the way down though.
All in all, we are screwed. Greece has got nothing on us.

Percy

Still house prices are holding up well, so the greedy old buggers from the shires will be happy.

Frank P

Percy

WBGTDWI?

Rhoda Klapp

Well, I went looking for more up to date figures, and found this,,

http://www.bankofengland.co.uk/publications/other/monetary/TrendsApril11.pdf

Showing the downtrends seen in 2008 have basically gone flat since 2009/10. UK households are getting a grip on debt. UK government has not and is not looking like it wll. Companies are still not borrowing. Three years late? Confirmed.

Simon Stephenson.

Fatbloke on Tour

Everyone in the country, apart from you and Ed Balls, is prepared to accept that some part of the difficulty being faced by the present government is due to the previous government's over-optimistic misjudgements about the sustainability of trend economic growth. The general feeling is that, had the previous government been more open to the warnings they were given - had they not been quite so automatic in dismissing all critics as Jeremiahs - then the state of the economy in May 2010 would not have been so dire, nor the problems faced by the new government so difficult.

This is not to say that Labour was entirely responsible - just that they made mistakes that perhaps they shouldn't have made, and that what was always going to be a bad situation was made even worse than it could have been.

But no, you and Mr Balls appear to be unable to show any recognition of this whatsoever, refusing to be moved from the continuous repetition of a storyline that is not a sober appreciation of what happened, but just the propaganda of selected information put together with the sole purpose of evading having to accept Labour's part-responsibility.

It's like you and Mr Balls are a pair of teenage arsonists standing on the side lines of a blaze you have just lit, and jeering at the firefighters for pointing their hoses in the wrong direction.

Ian Walker

Dear all, look up Georgism, then march on parliament.

John Richardson

Rhoda Klapp
May 31st, 2011 5:16pm

The UK Government has not 'got a grip' on first borrowing money and then spending the money they have borrowed.

I do not think that any honest person could dissagree with you.

Yet they still forment the idea that they are actuall cutting spending.

This is the opposite of any logical political position.

Why do you think this is?

(I appreciate it's a Big Question.)

Hysteria

Peter H said "Nothing captures the problem, for me, quite like the steady proliferation of payday loan shops. CoffeeHousers may have seen their garish presence on the high street, or in television advert breaks"

The thing is though that some of us were watching indicators of things going amiss a long time ago - remember all those adverts on TV ( I seem to remember Carol Vordeman being in one) "consolidate your debt - get everything into one easy payment and even have enough left over for a holiday"... the indicators of a systemic failure in the way we think about debt and money have been around for quite some time. Pay Day shops is just the latest...

Rhoda Klapp

John, your big question suggests only two answers. First, and most likely to me, they are merely passengers, and have no control over anything, save to mess it up even more. Second, they are going to inflate their way out by stealth. Of course they could be in state one and end up in position two.

Maybe we ought to ask TD, he'll explain how it's all part of the plan. Or all Labour's fault, possibly.

Simon Stephenson.

John Richardson and Rhoda Klapp

I think the answer may be that while the reduction of the structural deficit is a deliberate and planned policy, the reduction of the cyclical deficit is dependent upon the economy moving back into the upswing. Could it be that Mr Osborne's early projections for deficit reduction were based on us having made more progress towards recovery than we actually have?

Doesn't this make more sense than just looking at deficit reduction as a single project?

Rhoda Klapp

Simon, only if you accept that reducing the government's spending in any form by the minmum amount possible is the aim, that is that government spending really ought to be as much as can be afforded, as opposed to as much as may be borrowed for as long as possible. I do not accept that, I think it should be as little as possible. I am not sure that my view will ever prevail in realpolitik. Perhaps it is more of an aspiration, but it is not shared by those in charge at the moment. I use 'in charge' in the loosest possible sense.

John Montague

Jolly good article on this back in January 2007. Makes quite amusing reading now.

http://business.timesonline.co.uk/tol/business/article1290076.ece?token=null&offset=0&page=1

cuffleyburgers

But the important point is the word "private" in other words managing their affairs (well or badly) as they see fit.

As opposed to some one eyed scots megalomaniac emptying their wallets at gunpoint to piss the contents up the wall trying to buy some crazy fabian paradise in which he was eternal leader.

James

It is worrying that Peter Hoskins has accepted the received wisdom that mortgages fall into the "unavoidable debt" category.

That everyone can (or indeed should) own a home is a lie that was sold to us, I think, by America (and its Americanisation of the world). The economic reality is that not everybody can own a home, and there is a quite simple way to avoid a crippling mortgage: it is called RENTING WITHIN YOUR MEANS, and is something that is well accepted in places like Switzerland, Japan etc.

It may seem controversial - we are indoctrinated to believe property ownership is some holy grail of stability - but it is not. Quite apart from the fact that most never really OWN anything, studies have also shown that over the long term, property, as opposed to stock market investment (even accounting for all the booms and busts), is a poor investment indeed.

Rhoda Klapp

James, if you know any way whereby I can invest a six-figure sum of somebody else's money on the stock market with no collateral I'd like to hear it. If you have any idea of how much my net worth would be changed had I spent the money I paid as interest on rent, ditto.

TomTom

Funnily enough Council Tax, TV Licence, and a whole slew of Government Imposts arrive as Fixed Charges irrespective of income. They are not insignificant. There are NO restrictions on usury and we have fatuous rates of interest levied by so-called respectable lenders such as Banks and Credit Card companies compounding the debt.

They operate through Fear and Intimidation of the unfortunate rather than of the criminal. The Government simply invites them to increase minimum monthly repayments as if this reduces the strain for the cash-strapped. Shows how out of touch the Trust-Fund boys really are

Axstane

I tried to post yesterday asking what the relevant debt graph would look like if we stripped out mortgages. Home ownership in the UK is much higher than in France or Germany. Renting does not create a debt that would reflect in your figures.

James

Rhoda Klapp - the analogy was not given as an investment suggestion, but as an illustration that the "property as investment" argument is flawed.

However, if for instance, you were putting down a 10% to 20% deposit on a house, that amount, together with the amount you saved each month renting instead of mortgaging (assuming you saved that difference and invested it - fat chance, I know) would far outperform the capital growth in the house over the long term (can't emphasise enough that this is OVER THE LONG TERM). It would even do better over the long term in a hyper conservative investment vehicle (e.g. German government bonds).

Of course, if you're buying a house with a 100% mortgage (do those still exist?), the monthly savings point still applies, but really, as someone who would take a 100% (or mroe than 100% in the boom years) mortgage, it's pretty clear you would not be investing any savings were you a renter, and you deserve whatever financial vagaries befall you.

Andy Carpark

Percy
May 31st, 2011 3:26pm

Yeah, Percy. WBGTDWI?

Rhoda Klapp

James, rents have not historically been much less than mortgage repayments, if at all. I do not think you can assume a saving, like for like. Without the saving, you expect my return on a 10% deposit to be better than the return on 100% of a house price less paying back the principal. But the clever people (not myself) are the ones who upsized at the right time, and got far more bang for the buck. You have to move anyway, don't you? That's when you realize the gains and buy a house with upside potential. If you get that right, you can do well. If you get it wrong, just like with your investment, you can look stupid. And of course a forced sale can mess you up. The value of my equity in my current house is thirty times my first mortgage deposit. I reckon that's 10.5% compounded over thirty-four years (Yes, a lot of variables missing, just a raw figure). There may be investments in hindsight which would have done better, far better. The rpi over that period is around 5%. Petrol 9% or so. I can't work my way around the rebasing of the FTSE, but UK stocks have not performed at 10%.

John Richardson

Thanks for the reply.

Rhoda Klapp
May 31st,

"John..... most likely to me, they are merely passengers, and have no control over anything, save to mess it up even more."

This is my view.

The current generation of the political class do not even do a decent job of imitating our rulers.

They are spectators.

Does any one actually think that David Cameron made the decision to attack Libiya for example?

What would he base his opinion upon?

Mr Cameron is known to allow others to decide what clothes he wears.

"Second, they are going to inflate their way out by stealth."

That seems to be the official 'unofficial' policy.
The MS/Corporate Media have been touting this as a way of 'saving' those who have borrowed too much money.

I think we are in new territory altogether.
I do not think a 'recovery' is possible in the classic 20th century sense.

Simon Stephenson.
May 31st, 2011 9:51pm Report this comment

John Richardson and Rhoda Klapp

I think the answer may be that while the reduction of the structural deficit is a deliberate and planned policy, the reduction of the cyclical deficit is dependent upon the economy moving back into the upswing. Could it be that Mr Osborne's early projections for deficit reduction were based on us having made more progress towards recovery than we actually have?"

Thanks for the response.

Personally, I do not accept that the current political class have any intention of cutting state spending.

Nothing they do suggests that they have a clue how to 'radically' cut spending even if they wanted to.
Again, personally I do not think they even want to.

Briefly, if we consider the massive imposition of extra unnecessary regulation/taxes on small business SINCE the coalition took over, with more planned, then it is hard for me to see how they intend to allow natural grow to 'save the economy'.

I think the medium/long term plan is for all the Western economies to be made much poorer.

Regards.