We have come through the worst recession in more than 70 years and yet there remains a culture in which indebtedness is tolerated to an extent that would have been unheard of even one generation ago.
The latest figures from debt campaign Credit Action show that UK personal debt stood at 1,460 billion at the end of April, an increase of 0.8 per cent over the year. We can see that debt is not accumulating at anything like the rate it increased before. For example, the same organisation stated that the rate of increase in debt for the 12 months to April 2007 was an astonishing 10.4 per cent, which is why we are currently in the state we are in.
The recession was caused by reckless lending, unfathomable confidence in the housing market and an overriding optimism that, in the words of the 1997 Labour campaign, "Things can only get better". Now that we know this is wrong – and we face a hangover of unprecedented proportions.
But we are learning, albeit quite slowly. The figures also show that while total lending rose by 0.4bn in April and secured lending (such as on mortgages) increased by 0.5bn, consumer credit lending decreased by 0.1bn.
Average household debt, excluding mortgages, was 8,761, but this figure rises to 18,252 if the household has some form of unsecured loan.
Now this may well be because lenders are simply not lending to large swathes of the population, or it could be that borrowers are accepting that they cannot have everything they want immediately. Either way, the reduction in personal debt is essential if we are to escape this recession and develop an economy which is founded on actual earnings rather than indebtedness.
At the peak of the runaway debt economy credit was offered on every purchase, even for relatively small amounts of money. We were never told that we would have to wait – the only delay would be the delivery time for the item. Yet the impact of these borrowings, at eye-watering rates of interest, continues to be felt to this day. People may be paying off debts, or more likely simply paying the interest on those debts, for months, years and perhaps even decades after the purchases.
The escape from this cycle is difficult and I believe that we are seeing the start of generations of individuals who are exempted from mainstream credit services and end up borrowing from local, high street lending organisations or, more prevalently, website lenders who seem to believe that APRs in the thousands of per cent is an acceptable return on their loans.
The result will be swathes of people trapped in a debt cycle for years to come, with the potential for a transfer of this across generations encouraging long term impoverishment among Scotland. We must spread the culture of clearing all debts before incurring others, buying when we can afford items, and of saving for the future. These ideas were common only a generation ago and their spirit needs to be recaptured if we are to escape our culture of indebtedness.
Bryan Jackson is a corporate recovery partner with accountants and business advisers PKF