Government Remains Complacent about Debt Problems
The Government's latest report on household debt levels retains its complacent attitude to Britain's credit problems. In line with the approach taken in previous reports, no analysis of the extent of debt problems by income group is undertaken, and only general remarks concerning average debt levels is provided.
As debt levels have risen, the Government argues, so too has wealth - in the form of house prices. Additionally, the DTI report stresses that, on average, the ratio of savings to debt has remained constant - so people have the ability to use savings to cover immediate problems in debt repayments.
However, this ignores the fact that for the poorest the position with mortgages, house prices and saving is irrelevant - they rent their homes and half of them have no savings at all. For this group, the growth in their unsecured debt burden in recent years now represents a form of additional taxation that must be paid from their future incomes, deepening effective child poverty levels. Although the general level of unsecured debt has not increased in the last six months, this is unlikely to be evenly distributed across the income scale, with a greater increase in the debt burden of the poorest entirely possible even though the average has remained static. This is borne out by an earlier Bank of England report (based on data from the NMG survey in 2006), which reported that the unsecured debt burden for renters was continuing to increase.
Whilst the Bank of England dismissed this increase as largely irrelevant in terms of its impact on the macro-economy due to the relatively small level of total debt owed by renters compared to mortgagors, it is still extremely relevant to the Government's achievement of its child poverty targets and should not be ignored by the DTI report which is published as part of the Government's broader over-indebtedness action plan.
In relation to mortgage lending, the report fails to note that effective interest rates are at their highest level since 1991, due to the fact that secured lending has outstripped both retail price inflation and the growth in wages. As a result, relatively small increases in interest rates now have a greater impact on those mortgage holders that cannot afford to move themselves onto fixed rates.
In response to the situation, Debt on our Doorstep have today written to the DTI requesting that they provide an analysis of household debt by income level in all future reports and explain why effective interest rates are not reported.
As debt levels have risen, the Government argues, so too has wealth - in the form of house prices. Additionally, the DTI report stresses that, on average, the ratio of savings to debt has remained constant - so people have the ability to use savings to cover immediate problems in debt repayments.
However, this ignores the fact that for the poorest the position with mortgages, house prices and saving is irrelevant - they rent their homes and half of them have no savings at all. For this group, the growth in their unsecured debt burden in recent years now represents a form of additional taxation that must be paid from their future incomes, deepening effective child poverty levels. Although the general level of unsecured debt has not increased in the last six months, this is unlikely to be evenly distributed across the income scale, with a greater increase in the debt burden of the poorest entirely possible even though the average has remained static. This is borne out by an earlier Bank of England report (based on data from the NMG survey in 2006), which reported that the unsecured debt burden for renters was continuing to increase.
Whilst the Bank of England dismissed this increase as largely irrelevant in terms of its impact on the macro-economy due to the relatively small level of total debt owed by renters compared to mortgagors, it is still extremely relevant to the Government's achievement of its child poverty targets and should not be ignored by the DTI report which is published as part of the Government's broader over-indebtedness action plan.
In relation to mortgage lending, the report fails to note that effective interest rates are at their highest level since 1991, due to the fact that secured lending has outstripped both retail price inflation and the growth in wages. As a result, relatively small increases in interest rates now have a greater impact on those mortgage holders that cannot afford to move themselves onto fixed rates.
In response to the situation, Debt on our Doorstep have today written to the DTI requesting that they provide an analysis of household debt by income level in all future reports and explain why effective interest rates are not reported.
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