Britain’s other, bigger debt problem

And what about the other sort of debt? We spend so much time harrumphing about the national debt that an important point is obscured: personal debt, the amount owed by individuals, is even higher. I wrote an article on the subject for a recent issue of The Spectator, as well as the Thunderer column (£) for last Saturday’s Times. But, really, a piece in the latest Spectator (subscribers here) by Helen Wood — the former prostitute who transacted with Wayne Rooney, as well as with a “married actor” who has slapped her with a superinjunction — puts voice to the problem in blunter fashion. “My mistake,” she writes, “was to get into debt”:

“I borrowed £800 to go on holiday, followed by £500 to pay the rent — both from loan sharks. The interest increased by the day, the debts got out of control and I soon owed £2,500. By that time I had bailiffs coming to my door and my landlord asking for sex in lieu of rent (I refused) in a house where the windows were being regularly smashed.”

For Ms Wood, there was a dreadful sort of escape route: prostitution. For many others, debt can mean homelessness, drink, drugs, or just the everyday agony of a discontent mind. And it is a widespread and worsening affliction. British households now owe more than the output of the entire economy:

And more than any other major nation:

Of course, some of that is what we might regard as more acceptable, more unavoidable debt: mortgages and the like. But the facts are still overwhelming. There are, for instance, more credit cards in the country than people. This is the bubble that never burst.

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. They make a simple proposal: apply for a loan, repayable on your next wage, and the money will be in your account later that day. Except there’s a punishing detail in the small print: interest charged at an annual rate of 1,700 per cent. And yet the numbers applying for these loans have risen fourfold in the past five years.

The payday loan shops are not so much the disease as a symptom. The banks are restraining their lending, but people still need to borrow cash — and quick. Whether it is for paying a credit card bill or council taxes, a short-term loan can be a less poisonous proposal than a series of late payment fees. But, all the while, the nation relies on more borrowing to fund previous borrowing, on top of an existing mountain of debt. It holds the economy, as well as people, down.

The solutions are not easy, nor even obvious. Politicians may feel wary of interfering in people’s private business, and there’s even a sense that debt can be helpful in certain cases. Take today’s story about the relaxation of mortgage restrictions for first-time buyers; it’s a question of whether we want future generations to have the same leg-ups that helped earlier generations bounce onwards. But, against that, there are stern economic and moral reasons to clamp down on Britain’s debt addiction. Before the crash, we had a problem with debt-fuelled consumption. After the crash, that problem remains.