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The National Debt Reaches £2 Trillion – How is this Impacting on Households?

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They say that a week represents a long time in politics, but this pales in comparison with a decade in economics.

Incredibly, September 15th will mark the 10 year anniversary of the Lehmann Brothers collapse, which served as the catalyst for a financial crisis that brought the global economy to its knees. Western economies such as the U.S. and the UK were particularly badly hit, with debt levels in the latter continuing to rise across households and businesses alike.

The national debt in the UK has certainly soared during this time, with the Conservatives recently confirming that this has increased from £700 billion in 2010 to a staggering £2 trillion. We’ll consider these staggering numbers below, while asking how they’ve impacted on households nationwide.

 

Appraising Rising Household Debt During the Last Five Years

It’s interesting to note that as the national debt burden has grown, so too has the level of household liability in the UK.

It has not increased at quite the same pace, however, with household debt having increased incrementally by 7.3% during the past five years. Total debt peaked at £1.630.1 billion at the end of 2017, with the average Brit currently owing £8,000 in outstanding personal and unsecured loans.

While this may seem like relatively good news, however, there’s evidence to suggest that the budget deficit will soon be moving in the opposite direction to household debt. This is because the government has pledged to cut the national debt year-on-year until 2025, with a continued program of austerity and minimal public spending expected to achieve this goal (although the merits of this from a social perspective can be argued at length).

The other issue here is that while austerity measures may reduce the national debt, they’re hardly likely to inspire economic growth in the private or public sectors. As a result, these measures could actually have an adverse effect on household debt levels, as wages continue to stagnate and the cost of living rises.

It has been 10 years since the financial crash

Why the State of Wage Growth Remains a Pivotal Factor

Wage growth is particularly important when appraising household debt, especially when it’s measured against inflation.

It’s therefore no surprise to note that has while household debt and the rate of inflation has increased disproportionately during the last five years, wages have risen by just 0.7% during the same period.

This has made it increasingly difficult for households and individuals to save their hard earned cash, making them reliant on loans and credit to sustain their existing lifestyles.

Make no mistake; minimal wage growth can also be traced back to the government’s stringent economic policy, which is focused heavily on reducing spending rather than driving growth or attracting investment.

 

The Last Word

While it’s important that the national deficit is reduced, there’s a risk that this could come at the expense of household debt and the overall standard of living in the UK.

This would be a shame; particularly as the private sector has heeded many of the lessons taught by the great recession. The financial marketplace is now extremely well-regulated, for example, while lenders have become increasingly responsible and diversified their product to include this type of in-demand product.

However, this means little if households are not afforded the chance to earn a viable wage and reduce their debt burden, and in this respect reducing the national deficit is largely irrelevant in the near-term.

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