The Socialist 7 June 2007 |
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Drowning in an ocean of debt
IT IS a telling sign of the scale of debt-related stress, when some people who have 'opted' for bankruptcy say they are relieved. An insurance salesman who declared himself bankrupt was quoted in last Sunday's Observer (3.6.07), saying: "Although it still carries a stigma, overall it's been a ray of light, a salvation of sorts. It's an opportunity to start afresh".
Bankruptcy, though, is not a relief for everyone. Another testimony in the same Observer feature was from a working woman whose bankruptcy deal included being forced to pay £579 a month for the following three years and she was still threatened with court action for having borrowed 'beyond her means'.
The number of bankruptcies has reached its highest level since 1960 and personal debt in Britain has reached £1.3 trillion, the highest level in Europe.
A record 30,075 people declared themselves bankrupt or insolvent between January and March this year. County court judgments regarding unpaid debts on credit cards, personal loans, mortgages, car loans etc has nearly doubled in three years. Nearly 250,000 were issued in the first quarter of this year.
Banks and other profiteering lenders are turning to the courts more and more, backed up by bailiffs who will try to seize goods. They are increasingly keen to go to court at an earlier stage, in order to act before people reach a point where they declare themselves bankrupt or resort to an 'individual voluntary agreement' (IVA), as these outcomes make it more difficult for banks to recover all the loans and interest.
IVAs involve a negotiation to write off a portion of the debt. But incredibly, the company setting up the IVA can super-exploit the debtor's crisis by taking the first chunk of re-negotiated loan repayments for itself - a kickback that can amount to thousands of pounds!
In any event, banks make sure that they themselves do not suffer too much from the spiralling number of debt defaults. Having enticed people into massive debt in the first place, when a layer of people cannot manage the repayments they simply increase bank charges for everyone else, or threaten to do so again soon. When rejected by the main institutions, some people turn in desperation to door-to-door loan sharks at interest rates of up to 500%, with no legal limit.
Culture of debt
AN INCREASING number of young people are getting into difficulty. They face much greater financial burdens than their parents' generation on expenditure like house rents, mortgages and university costs. At the same time they are sucked into a dangerous present-day capitalist culture of seeing debt as normal or even healthily speculative and superior to not having it.
Contributing to this is widespread sentiment that the borrowing can go on and on with the total debt never being repaid. This is not the first time that there has been such a "bubble of delusion", as it was described by one commentator. For instance, there was one before the early 1990s housing price crash.
The poorest working-class people are particularly hard hit, often having high debt levels in relation to their income, but more affluent workers and middle-class people are badly affected too.
People are paying up to 50% of their income in servicing debt and find it increasingly difficult to manage, especially those who feel compelled to borrow more and more and end up facing astronomical interest payments. A recent survey showed that the average two-child household has more than £100,000 worth of mortgage, loan and credit card debt.
Four interest rate rises since last August have brought interest rates to 5.75%, with a further rise to 6% already predicted. More interest rate increases or higher unemployment, or both together, will send many more people into a downward spiral.
The high levels of personal debt have become a familiar refrain in newspapers. With this background, it is important not to become immune to noticing the increasing extent and speed of the escalation. Housing debt for instance has increased by 20% in the last year alone. Nationwide building society reported a huge 92% increase in housing borrowing in 2006 compared with 2005. And as the charity Citizens Advice warned: "It takes only a small change in people's circumstances to tip them from manageable commitments into serious debt".
Of course there are limits to how much debt people can be burdened with. As a general rise towards those limits is reached, it is inevitable that people will have to stop borrowing more and will then have to cut back on their spending.
At some point this will tip the credit-fuelled economy into recession and interest rates might be temporarily lowered, but that will be small comfort to workers who lose their jobs in the recession and the millions who will face further attempts by the bosses to keep pay rises low or non-existent. Recession would also bring further attacks by the government on public services, already being destroyed in a period of economic growth.
We must fight for:
- Publicly controlled, free and fully-funded debt advice
- An end to all house repossessions and evictions due to debt; for the right to cheap mortgages at fixed rates or rental accommodation with affordable rents
- Low-interest credit and a ban on high and limitless interest rates
- No university tuition fees; for a decent student grant
- An £8 an hour minimum wage and an end to low pay rises
- Nationalisation of all the major banks and building societies.