Britons pile on the debt - The Telegraph

Full story available on the Telegraph website.

By James Hall, Consumer Affairs Editor

Britons have taken on the highest levels of debt since the height of the recession in May 2009 as they struggle to fund the rising cost of living, official figures have found.

Households have amassed £208.6 billion of outstanding debts in credit cards, bank overdrafts and other loans, equivalent to £9,070 for every household in the country.

In the past year household debts - excluding mortgages - have risen by over £5 billion, the biggest annual increase since the recession, the Bank said.

In the last month alone, Britons have increased their debts by £629 million.

Economists said that the figures show that people are having to borrow money simply to fund their day-to-day living in the face of rising inflation.

Howard Archer, chief UK and European economist at Global Insight, said that instances of “stressed borrowing” by consumers are on the rise.

Inflation is running at over 5 per cent and wages are largely stagnant, meaning that people’s money is not stretching as far. The average family’s spending power has fallen by £730 over the last year because of rising petrol, energy and food prices, according to recent research by supermarket Asda.

Mr Archer said: “The rise in unsecured consumer credit suggests increased ‘stressed borrowing’ is occurring, with more people having to borrow to help finance their spending.

“This is a consequence of the extended squeeze on their purchasing power coming from elevated inflation, low wage growth and tighter fiscal policy. In addition, job losses are rising."

The Bank of England also said yesterday that mortgage approvals had fallen slightly in September, suggesting a cooling of the housing market since the summer. There were 50, 967 mortgage approvals in September, down from 52,347 in August.

Both figures are substantially below the average monthly level of 88,000 seen since 1993.

According to the Office for Budget Responsibility (OBR), total household debt in the UK – including mortgages - will rise from £1.6 trillion in 2011 to £2.1 trillion in 2015. This means that by 2015, the average Briton will have debt equivalent to 175 per cent of their annual disposable income, up from 160 per cent today.

The poorest households in the UK are being hit by VAT far more than the richest households, according to new figures from the ONS.

Figures show that while the poorest fifth of households in the UK spend 10 per cent of their disposable income on VAT, the fifth richest households spend just 5.3 per cent.
The Government increased VAT from 17.5 per cent to 20 per cent in January in an effort to plug the UK’s budget deficit.

The poorest fifth of households now spend a higher proportion of their money on goods that attract VAT than they did in 1986, the ONS said.

David Breger of chartered accountants HW Fisher & Company said: “This reinforces what is widely perceived to be the fundamental inequality at the heart of VAT.”

Tuesday, 1st November 2011

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