Debt is the Issue – but it’s personal debt, not just government debt

By John McDonnell MP

If the announcement of the government’s Spending Review this week revealed anything, it was the almost complete disconnect between the Johnson administration and the life many of our people are living.

Although we heard constantly of the Chancellor’s concern about the high levels of government borrowing and debt, not a word was said by him about the high levels of personal debt that people are burdened with.   

Most of the media questioning of the Chancellor was about when he would announce either tax rises or cuts in government spending, or more likely both, to reduce the level of the £378 billion deficit. There was very little about the struggle many people are having financially and the personal debt that they are entering into just to get by.

Instead there were many grandiose “pie in the sky” announcements of infrastructure spending that will take years before it feeds through into real jobs and wages.

Alongside the spending proposals was the confirmation that austerity is back. The pay freeze for millions of public sector workers, the refusal to introduce the full increase in the minimum wage and the continuation of disgracefully low rates of benefits will plummet more families into debt over the next year.

Already we know that the pandemic has forced people to take on more debt and they are struggling with the repayments.

According to the latest figures from Which,  800,000 people failed to meet their credit or loan obligations in October with an increase of 370,000 in the last month. The government’s own financial services regulator, the FCA, assessed that 12 million people have low financial resilience. In other words, they haven’t enough resources to cope with a financial shock like a sudden loss of income.

Stepchange, the debt charity, reported that the number of people in severe debt has doubled over the last six months. Over 7 million are behind on their utility and council tax bills. Two thirds of families on universal credit had borrowed money to survive and now there is a risk the Chancellor will cut the £20 additional pandemic allocation.

We are in a personal debt crisis. The impact on people and their families can be devastating as a result of the stress and mental health problems caused by worries. It’s estimated that each year 100,000 attempts at suicide are associated with debt.

In the 2008 financial crisis, the government took the view that the banks were too big to fail. As a result it took over the bad debts of the banks under the UK Asset Resolution scheme, the so called bad bank that purchased problem debts from the banks to clean up their balance sheets.

The aggregate number of people in debt should also be judged as too big to be allowed to fail. We need to change the focus of the discussion on the economy up to next year’s likely spring budget away from solely concentrating on the big numbers of government borrowing and debt and instead look at the crippling burden of personal debt on so many of our people.

A Debt Programme could readily be brought forward that follows the  example set in 2008 for tackling the banks’ debts, linked to a cap on interest rates charged, the scrapping of tuition fee debt and, to make up for the appalling cut in overseas aid, a UK lead on a new debt jubilee for the Global South.

In the US, coming out of the Occupy Movement and the work of the late David Graeber and Astra Taylor, the Debt Collective was launched. This brought together victims of the debt system with policy experts and campaigners. By using the organisational methods of trade unionism, including strikes and negotiations, it has not only brought debt to the top of the political agenda, it has also achieved several major victories in the writing off of large amounts of debt, freeing millions of people from their debt burden.

In the coming months under the auspices of the Claim the Future project, we aim to explore the launch of a debt campaign in the UK and set up a Debt Collective. Contact me if you are interested in participating in this discussion and action.

Follow us!
To receive regular updates about Labour Hub articles, sign up here.