New research published today (Thursday 12 February 2015) indicates that official UK growth forecasts are dependent on household debt growing three times faster than pay.
The analysis of Chancellor George Osborne’s economic plans uses forecasts by the Office for Budget Responsibility to compare earnings and household borrowing for the period from 2015 to 2019.
It finds that while wages are forecast to grow at 16 per cent over the period, total household debt is forecast to grow 2.7 times as fast at 42 per cent.
The work has been carried out by the Trades Union Congress (TUC), and backs one of the points made by Scottish First Minister Nicola Sturgeon in her London School of Economics speech yesterday on the moral and financial failings of austerity.
Strikingly, unsecured household debt is forecast to grow 4.5 times as fast as wages – by 70 per cent between 2015 and 2019. It will reach an average of around £29,000 of unsecured debt per household by 2019.
If the forecasts are met, total UK household debt in 2019 will be 182 per cent of household income. This is significantly above the previous all-time high of 167 per cent immediately before the 2008 crash.
But if households are unwilling to take on so much extra debt, then economic growth is likely to be lower than forecast.
TUC General Secretary Frances O’Grady commented: “The Chancellor seems to be hoping for a do-it-yourself recovery, where families run their own deficits and stoke-up their own debt. An average household debt of £29,000 is an awful lot of payday loans, credit card debts and bank overdrafts.
“This is exactly what happened before the last crash, and why we had to bail out banks full of bad debt. If interest rates rise, then many households will be in immediate difficulty.
“In a healthy economy, workers’ wages grow faster than their debts . What we really need is a wages-led recovery, not a debt-fuelled bubble. If this Chancellor continues he will be doing the exact opposite of what we need – his huge cuts to vital services will slow the economy while he encourages families to spend money they don’t have instead. It’s not so much a long-term plan as a dodgy flat-pack self-assembly recovery.”
Ekklesia and others have been pointing out for some time that the debt problem the UK faces is financial, banking and household debt far more than public sector debt – which in turn has been distorted by having to spend on the costs of low wages and deflationary policies.
* Also on Ekklesia: Compelling refutations of the austerity narrative: http://www.ekklesia.co.uk/node/21247
* TUC: http://www.tuc.org.uk/
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