This week it was revealed that consumer debt – that is, debt amassed by private individuals – has risen to levels not seen before the 2008 financial crash. “Consumers” in Britain now owe as much as £2,000,000,000,000 (two billion) in unsecured debts, and watchdogs have warned that a rise in interest rates could push many debtors over the proverbial cliff-edge. This is further backed up by the results of a number of surveys conducted in recent years which estimate that over 8 million people in Britain have “problem debt” – debt that causes a serious concern over potential inability to pay.
There is also grave concern over the number of people requiring so-called payday loans in order to make ends meet. These are short term loans that typically incur obscenely large interest rates, particularly if you fall behind with repayments. It’s estimated that as many as 51% of women in Britain use payday loans in some form or another in order to stay solvent during a given month. The reasons for Britons requiring these payday loans, as well as the rest that constitute the £200bn debt mountain, are varied; vehicle finance/repairs, unforeseen household expenses or maintenance, rising petrol and food costs, and even utility bills.
In light of this damning indictment of the financial situation of many British people, some have called for public enquiries, tougher restrictions on loan providers, and a rise in the minimum wage. These are all valid suggestions, but many of those offering them fail to see the root causes behind the debt crisis. In truth, the reasons behind this great mass of public debt are multifaceted and in some cases quite complex or even abstract. Not only that, but many of them break some of the great politically correct taboos of our time, which at least explains the establishment’s reluctance to acknowledge them.
Perhaps the most obvious cause of the debt crisis, and definitely the most popular with those on the left of the political spectrum, is the seemingly unrestrained excesses of irresponsible lenders. Of course, the British economy is not awash with reckless, predatory lenders preying on the vulnerable; there are rules and regulations. The Consumer Credit Act 2006 compels the Office of Fair Trading to take into consideration irresponsible lending when deciding whether or not to grant/renew a loan company’s licence to trade. Furthermore, the Financial Conduct Authority has a lot of power when it comes to investigating and revoking the licences of financial services firms who are proven to be trading unethically.
However, many firms still make their profits under the premise of selling quick finance to those who are clearly unable to pay, often without performing the proper checks on a person’s credit history. Clearly, doing business in this way and selling fast loans to desperate people at interests rates from anywhere between 30% and 300% is odiously unethical. The government is not doing nearly enough to clamp down on the many rogue lenders in the market. Quite the opposite; the present Conservative government and past Labour governments passively encouraged this practise as a ‘valid segment of the market’.
But in reality, there is very little moral validity in the kind of business these loan sharks practise. Only greater state intervention in the financial services market, comprising of stricter regulation and harsher punishments for malpractice, will contribute to getting this debt crisis under control. The Financial Conduct Authority has too much bureaucracy and too little power to effectively regulate the markets. A new body is needed with greater powers to prevent irresponsible lending and swiftly bring to justice those who flout the law for a fast profit. Perhaps this new body could, as a primary function, take lenders to court on behalf of wronged customers?
Whilst the role of irresponsible lenders in Britain’s debt crisis cannot be understated, those who borrow money irresponsibly must also shoulder some of the responsibility for their problems. Whilst many seek to blame this on a lack of information – some 83% of indebted Britons do not get the advice they need – the plain and simple truth is that there’s a large segment of the British population who are simply financially inept. To be crude about it, they cannot be trusted to make a rational decision when faced with the allure of seemingly quick and easy money.
This is not just the case for those who take out payday loans. Often people take out finance deals on anything from new furniture to a new car, when the state of their finances suggest that they should do otherwise. Of course, financiers themselves share in the blame for their disregard of one’s poor credit history when offering items on credit, but the truth is that many people are simply not living within their means. This is partly a cultural issue of an ultra-materialistic society, which I shall discuss more shortly, but as a short-term measure the state must be prepared to intervene more closely in matters of personal finance, perhaps through legislating to the effect that debts of those whose total assets fall below a certain value must be secured or at least guaranteed by a third party.
A Culture of Materialism
It does seem that the only “virtue” the modern world has to boast of is the ability for material goods to be provided on demand – for a price. This has its benefits; technological advances mean that to “get on” in the world, there is a certain necessity for the latest gadgets. For instance, a portable computer and a smartphone make work and social activities infinitely more easy to coordinate, as well as enabling us to keep in touch with friends and family from around the world. This is an important part of modern life, but one that must not be conflated with an almost pathological desire to possess all the latest gadgets just for the sake of it.
This primitive attitude of “must have now” is a product of western capitalism if one seeks a philosophical explanation, but to deal with the issue in the present then certain tangible factors must be recognised. Firstly, commercial advertising is a growing irritant that’s fuelling a large part of this recent debt bubble. The allure of the latest car, watch, phone, computer, clothing and so on is thrust under the noses of everybody who turns on a television, radio or anything else that connects you to the world. For too long, commercial advertisers have been permitted to ruthlessly up-sell their products to the detriment of wider society.
In conjunction with the allure of the new, the burying of the old contributes to this issue. Cultural quirks and norms have never been, historically, expensive; in Britain they’ve centred around the outdoors, family, friends, the church and so on. For centuries, British people lived happily on what we might today term “cheap thrills”. Sadly, this has been gradually phased out and replaced by a rootless, universal culture of consumerism that is often toxic and antithetical to genuine culture. A revival of certain cultural practises would go a long way to repairing society, along with its collective mental and financial health.
Thus far I have managed to discuss the causes of debt without alluding to the elephant in the room: wages. It’s a matter of simple mathematics that having less money in your bank account will give rise to a greater need to borrow. Given that as many as 1 in 5 Brits are paid below the living wage (the recommended wage to cover average living costs), it’s hardly surprising that many are turning to payday loans and other means of debt to simply survive and support their family. This is neither healthy with regard to the debt people begin to accumulate, nor dignified.
The first priority of any government wishing to tackle the debt crisis should be to look at ways through which the wages of ordinary people can be raised, and raised significantly. For a harmonious society, wages must reflect the work a person does, not embitter them or foster resentment as the current system does. If fixing a higher minimum wage or introducing a legal living wage proves too challenging to accomplish, a wage-price control mechanism could be introduced to regulate the prices of essentials such as bread, milk, electricity and water, tying them to wages as opposed to market-created inflation.
The reason I avoided mentioning wages until later on in this article is that everybody can recognise throwing more money at a problem is not always the best solution. As aforementioned, there is a large segment of society that simply cannot be trusted with financial matters. These are the people who, given higher wages, would simply spend more and continue to amass debt at exactly the same rate. This is why regulating lenders and imposing greater restrictions on both lenders and borrowers is a more pertinent solution for the segment of society in question.
Whatever the solutions, the problem is clear; the British people are living in a debt bubble that, with rising inflation caused by a devalued pound, is certain to burst some day soon. A rise in interest rates will push many people below the poverty line, or even cause some to default on their debts entirely. A scenario such as this is bad for the individual and for society as a whole, therefore the powers that be must act and act now if such a cacophony of errors is to be avoided.