Osborne – Maxing out the nation’s credit card
I have post up at False Economy on the outlook for household debt and how it is due to soar. An issue raised in Parliament yesterday by Chuka Umunna.
As I write there:
The household debt-to-income ratio (the best measure of how manageable the debt burden is) fell from 2007 until 2010. It is now forecast to start rising again. Osborne described pre-crisis household debt-to-income ratios as unsustainable – and yet the ratio is forecast to hit a new all-time high in 2015.
More damagingly for Osborne, the OBR forecast for June 2010 (pdf) – before his first budget – predicted that household debt in 2014 would stand at £1,718bn. But following two Osborne budgets that number has now been revised up to £1,963bn – an increase of £245bn. In other words as a result of Osborne’s policies the direct debt burden on UK households is set to increase by nearly a quarter of a trillion pounds in the next three years.
Back in June last year, before Osborne’s policy changes, the OBR forecast (pdf) that public sector net debt (government debt) would be £1,294bn in 2013/14. After two budgets and a spending review they have revised that (pdf) to £1,251bn – a reduction of only £43bn
Here we can clearly see the impact of Osborne’s changes over the next three years: public debt down by £43bn BUT private household debt up by £245bn – five times as much.
The chart below compares the OBR’s household debt to income ratio forecasts pre and post Osborne’s two budgets. As can be vividly seen, it was originally forecast to continue decling – but is now set to soar.
Households, as Osborne acknowledged yesterday, are in for a very tough few years – high inflation, tax
changes such as the VAT hike, benefit changes and low wage growth. The only way they will be able make ends meet is by borrowing.
Osborne likes to talk about paying off the ‘nation’s credit card’ – the chart above suggests he is about to max it out.