Fears are growing for the economic recovery, with research suggesting that families will run up approximately £40bn worth of debt in the coming year. Labour has raised concerns that “serious hardship” would be experienced by millions of UK households and the economy harmed if the trend for borrowing continues, especially if interest rates also rise.
The most recent forecasts from the Office for Budget Responsibility (OBR) suggest that a £40bn deficit would affect households this year − a significant shift from the £67bn surplus in 2010, when the coalition first came into power.
Levels of borrowing have risen sharply and look set to approach figures noted in 2008, just before the financial crash. This is obviously unsustainable in the long term.
Shadow chief secretary to the Treasury, Seema Malhotra, expressed concern that for George Osborne to achieve his targets for growth, millions of families will have to borrow even more. It seems personal debt is the shaky foundation for the economic ‘miracle’, of which Mr Osborne and David Cameron are so proud. Ms Malhotra points out that if interest rates were to rise now, millions of British families would be plunged even further into poverty.
The ability to borrow and access credit is currently essential for families to invest in the future; however, the economy needs to be rebalanced, away from this reliance on debt and borrowing. Labour itself is keen to highlight the need for a robust and sustainable economic recovery. The party’s belief is that George Osborne’s political decisions to date have been short-term measures and that they now pose a real risk of financial damage for the economy and millions of families in the long term.
Companies such as Carringtondean help with debt advice and families experiencing financial difficulty are urged to get in contact sooner rather than later. An individual voluntary arrangement (IVA) or similar debt solution can enable families to turn their financial situation around.
Sir Vince Cable, previously the business secretary, has issued warnings that Britain is risking a return to the days when personal borrowing was sustaining economic growth. We all remember far too well where that particular road will eventually lead, especially when loans are being taken out against an inflating housing stock in the majority of cases.