The UK’s everyday debt economy

Household debt is the strategic silence in contemporary policy debates about the state of the UK economy. We know that households across the income and socio-economic spectrum are dependent on debt: in 2014, households with average incomes, families with children and people in full-time work are those with most risks associated with indebtedness.  Debt has become a panacea to ease the chronic maladies of the UK economy.  From the squeezed-middle to the urban poor, many households rely on debt to maintain a standard-of-living that would otherwise be unavailable without access to easy credit.

Over a period of six months we investigated non-state and non-market sites of debt resilience in the UK and, in doing so, observed the new everyday political economy of indebtedness. We found that civil society organisations seek to fill the policy void created by government inaction by generating meaningful data on household debt and engaging directly with households, as well as community groups, to articulate a wider politics of debt.  In this way, civil society groups make visible the many ways households create the UK’s debt economy.

One key finding was how UK households take on ever more debt to replace the lack of government services and provisions for households.  Debt is now the main safety-net for households to cope with unexpected events or emergency, primarily job loss, because debt is the only available resource to get through difficult times.

Households at the lower end of the income distribution rely most heavily on private debt to replace public welfare.  Reliance on the debt safety-net is not necessarily a universal experience; it is the already disadvantaged – the people the welfare state aims to protect – that are worst hit.  Women with dependent children, those experiencing family breakdown, and the sick or disabled are much more likely to be over-indebted.  These conclusions are supported further by in-depth community-based research in Teeside and Newham; this shows again and again that poor households in deprived areas take on more debt to survive.

It is only slightly different for the ‘squeezed middle’ who are leveraged to the hilt.  Successive UK governments promoted home-ownership as a form of welfare.  In practice, it means homeowners take on ever higher levels of mortgage debt in order to buy a house, hoping that it will provide wealth gains now and in 30-years’ time that will lessen their dependence on government investment and services.  In just under 25 years, the national average house price has increased 336%, while the stock of outstanding mortgage debt increased 781%!

For middle-income households, ‘Your house is your pension’ as mortgage debt in effect comes to replace public spending on pensions.  Home equity release, like UK Lifetime Mortgages or Home for Life Plans, targets older and/or retired homeowners with financial products that allow them to borrow against the value of their home.  Also, the self-employed rely on personal debt and housing equity, not business loans, to run their businesses. In addition, households with children increasingly borrow to pay what is called the ‘catchment area premium’ – getting a house with access to good state-schools.

The ‘squeezed middle’ can only offer more of the same to aspiring young people: they too must mortgage their future by taking on more debt to pay for successive increases in university fees and cuts to student subsidies for further education.

Against this background, the New Politics of Indebtedness report applies an everyday political economy lens to evaluate rising household debt levels.  This bottom-up approach shows clearly how stagnant wages meet easy credit, which in turn creates the current policy status quo: insecure employment, stagnant private and public sector wage growth, continued debt-led investment in the residential housing market and consumption to bolster GDP growth figures.  Household debt makes this possible, which is why there is no policy or strategic plan to do something about it – even though indebtedness is contributing to wider societal and political economic problems.

The political shift to ‘Austerity’ following the 2008 financial crisis only contributes to worsening household indebtedness.  Austerity supports simultaneous household and state deleveraging – or paying down debts – in order to repair the damage caused by pre-2008 credit-fuelled profligacy. In practice, public policy now directly promotes personal and household debt as a means to replace public spending.  In most instances debt is downloaded on to households with the aim of reducing public debt.  However, as the latest budget figures show clearly, public debt levels in the UK are not going down, while household debts continue to increase year-on-year.  It is becoming more and more apparent that ‘Austerity’ exacerbates the underlying problems indebtedness fosters.

There is, in fact, a stark hypocrisy at the core of the current official ‘Austerity’ agenda: the government wants to impose austerity on households, but expects them to take on more (expensive) private debt so it, the government, can pay down the public debt.

Dependence on this debt economy also explains the public policy void: very little is being done to understand or address the problems precipitated by widespread household indebtedness.  Why so?  Because the entire economy is dependent on it continuing unabated! This creates a fundamental double-bind for UK households and the wider economy and at the same time highlights the great ‘strategic silence’ at the heart of the contemporary political economy of the UK.

If every household struggling with debt decided to pay down its debts, the UK economy would be plunged into depression, with the global economy following closely behind.  However, if every household struggling with debt continues to take on more debt to maintain its standard of living, then soon there will be mass insolvency.