Household Debt (Again)
On Thursday the OBR put on a detailed note on their Household Debt forecasts. Something I welcome.
I planned to blog about this over the weekend, but given the excellent weather, a weekend of variously sitting about in Alexandria and Finsbury Parks seeing friends, getting a much needed hair cut and generally relaxing seemed a lot more pressing.
Matt Sinclair has blogged about these numbers today – claiming that they vindicate him and prove me wrong.
I wasn’t planning on writing this today and don’t really want to get into another argument (although I’m happy to if needed!), so here’s a very quick response – written with one hand whilst I enjoy my Tesco prawn sandwich lunch.
- I will accept that writing on False Economy in a way that suggested the entire £245bn increase in household debt was due to Osborne was ill advised. I should have noted the increase in household debt and noted how Osborne was driving up it up, but not claimed he was entirely responsible. Hands up, sorry – poor wording on my part. But…
- Osborne’s policies clearly have driven up household debt forecasts. In his post today, Matt only attributes direct policy changes to Osborne (and that still comes to £17bn). The effects of his policies in pushing up unemployment have also driven down wages. And falling earnings forecasts are a significant part of the reasons that the OBR has revised debt up. In table A.3 for example the earnings forecast change puts £40bn on household debt.
- Matt’s original attack on my False Economy post was based on the idea that higher inflation has increased the debt forecast. Something we now know is not really the case.
- Leaving aside how much Osborne is responsible for the forecast increase in household debt, the fact remains that it is forecast to soar to new record highs – something he regarded as unsustainable before he was Chancellor, but which he downplays now.
- The OBR have also now told us that net household worth is forecast to fall in the next few years (i.e. this is a net not just a gross issue).
- Finally I’d again say, that I think the OBR numbers will turn out to be wrong. I don’t see the household savings ratio falling and staying low until 2015. Which is a problem given consumer spending is forecast to account for about 40% of growth over the next 4 years.