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Austerity ideologues must wake up to growing debt bubble

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LGC’s essential daily briefing.

Not for the first time this year, month, or even week - the government (both local and national) has been urged to “get a grip”.

Reacting to a new National Audit Office report on household borrowing, the chief executive of Citizens Advice warned of the impact of ‘problem debt’ and the effects of an over-reliance on bailiffs.

Gillian Guy said: “The finger is now being firmly pointed at government to get a grip on the scale of household debt.”

The Money Advice Service believes there are 8.3 million people in the UK who are struggling to pay debts or other household bills. It has also estimated a total national bill for personal debt totalling £18bn, at a minimum. The appropriate economic term for this amount is, allegedly, a ‘metric mount-tonne”.

The NAO reports today that 22% of UK adults possess less than £100 in savings while Citizens Advice reports that 42,000 people have approached them for help last year. Homelessness is also rocketing, with a 15% national rise in rough sleepers recorded between 2016 and 2017.

Akin to a council finance officer taking advantage of historically low interest rates to meet spiralling costs through refinancing and borrowing - all while reserve levels run perilously low - the average household has seemingly done the same over the past five years. The ratio of unsecured debt to household income has been increasing since 2014, the NAO said.

LGC reported last month that total council tax owed in England had risen by 6.6% in the past year, while court costs for debt collection also rose by 4.8%. Responding to that analysis, Ms Guy warned against using “a heavy-handed tactic” like bailiffs as it is “ineffective in recovering money.”

Sheila Wheeler, UK debt advice director at the Money Advice Service, has also warned against the “expensive and misery-inducing” use of bailiffs by councils which result in “little gain”.

The solution to council tax debt could, should and must lie in prevention. Yet, tragically, central government cuts to local government coffers mean that more and more councils are being forced to scrap preventative services.

In Northamptonshire this week, the county council announced it would end its contract with the Community Law Service (CLS), formerly known as Welfare Rights, reducing its capacity to help 4,000 of the county’s most vulnerable residents. The county council is to also withdraw £220,000 of grant funding to citizens advice services in Corby, Kettering, Daventry and South Northamptonshire. The organisations have claimed the cuts will lead to more residents getting into debt, more families becoming homeless and more people developing mental health problems. 

Stuart Gallimore, president of the Association of Directors of Children’s Services, has previously warned against the “false economy” of cutting these preventative services.

Mr Gallimore wrote for LGC in March: “Local authorities are having to cut vital early help and preventative services that help prevent the problems children and families face from escalating to crisis point. This is a false economy. At the same time, levels of child poverty are increasing, and more families are going hungry or using food banks to survive.”

Public service cuts, both local and national, have an effect on people’s lives and that effect compounded has created a bubble which the NAO has today tried to expose.

The last time a debt bubble was ignored until after it had popped, the economy almost crashed. The government and austerity ideologues beware.

By Robert Cusack, reporter

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