Wednesday, September 27, 2006

Gordon Brown is just as responsible for high unsecured debt levels

The headline report this morning on the BBC appears to be the level of debt in the UK. Apparently, according to DataMonitor, the average level of personal unsecured debt in the UK is double the average level of debt in Europe. There have been lots of people on the radio explaining how this is because we in Britain are less debt-averse, we like the offers of credit given to us, we have a "buy now, pay later" culture. All those things are true, but what no one mentioned was Gordon Brown's impact on the stats.

Let us not forget, as we are so often told, that interest rates are at record low-levels. This is rolled out as if it is, by necessity, a good thing. The argument goes, interest rates low, mortgage rates low, people not in negative equity like under the Tories, therefore low interest rates are good. Here's the problem though, when interest rates are low it discourages saving, and encourages debt. Larger debt, in reverse to low interest rates, is not by necessity "bad", but, when looked at in the totality of government policy it does become something of a concern.

Under Gordon Brown's chancellorship we have had laws which make personal bankruptcy easier for example. No longer does declaring oneself bankrupt ruin you financially for years. We now have a situation where one can run up huge debts, declare themselves bankrupt, wait a year and then start all over again. Easier and cheap credit, as a result of low interest rates, encourages people to get in over there heads, and the Government has provided them with a way of getting out of that debt quickly and easier.

What's more the tax credit system, by encompassing ever larger groups of people inside the Treasury hand-out scheme, discourages saving by design. If you are a low paid family who receives tax credits you dare not save money else your credit is reduced. The system encourages spending over saving at a time when it's clear the future of pensions for those very people is in question.

Yes, we have higher levels of insecure debt because of our cultural differences with Europe. But let's not forget that this Government has done nothing to encourage prudent fiscal management by the individual and has, in fact, irresponsibly encouraged a "think in the short term because in the long term you're dead" culture.

1 comment:

Anonymous said...

Datamonitor's comparison is more than a bit shaky. In many (most?)of the countries in mainland Western Europe, so-called credit cards are charge cards - the debt must be cleared at the end of each accounting month. So the comparison is being made between apples (unsecured loans + current month's plastic) vs apples plus bananas (plastic debt older than 1 month). But a cursory examination of the report is obviously beyond the BBC.
I'd be interested to see the apples vs apples numbers. I suspect that they would still show that UK had borrowed more apples; I can't disagree with the sentiments in your post.