We are in the midst of the biggest personal debt crisis in Britain’s history, with household debt now 140% of total national income and still going north. According to the Centre for Social Justice, there are now about 3.9m households who do not have sufficient savings to cover the rent or mortgage for more than a month, and average household debt including mortgages has now risen to some £54,000. The poorest households now have average debts more than four times their annual income, and their average debt repayments now amount to almost half their gross monthly income. Most disturbing of all, there are now about 600,000 households spending more than half of their disposable income on debt repayments.
Even when they try to escape, they are caught. One way out is a bankruptcy application, but the recent rise in fees for this has blocked a number from applying. The other alternative is a debt management plan, the use of which is increasing. But whereas bankruptcy offered a rapid discharge from debt and a substantial write-down of existing debts, debt management plans do not. Moreover it is particularly worrying when debt management plans are offered by companies which are fee-charging and operate commercially. Their average repayment terms often require these plans to last for 12 years, whereas debtors can usually keep up these payments for less than 3 years.
Unsurprisingly, research has found that the quality of advice from debt management firms was poor and reflected the commercial interests of the firm rather than the needs of the debtor. The research even found that two-thirds of these commercial advisers gave advice without even asking about disposable income. All these facts, and a multitude more, can be found in Damon Gibbon’s book just published called ‘Britain’s Personal Debt Crisis’, which I strongly recommend both as a highly readable analysis of one of Britain’s greatest, but still poorly understood, current problems but also as a comprehensive and novel statement of the range of policies needed to deal with it. The link is http://www.searchingfinance.com/products/books-econ-politics-finance/coming-soon-from-searching-finance-…-damon-gibbons-solving britain-s-personal-debt-crisis.html One key proposal is for government and the credit industry to develop a programme of structured write-offs and debt rescheduling similar to the US Home Mortgage Affordability Programme. It could be delivered by a very different kind of Quantitative Easing, with the banks required to use the funds to restructure existing household debt to make it more affordable.