THE GIGANTIC scale of personal debt in Britain has been revealed in the publication yesterday of the biggest ever survey of households conducted by the Financial Conduct Authority (FCA).
The FCA, which is the official body responsible for the regulation of banks and financial institutions investigated 13,000 households, an investigation prompted by the growing fear of the Bank of England that personal debt in Britain will crash the entire banking system.
The FCA found that 25.6 million people, a staggering 50% of the adult population, ‘display one or more characteristics that signal their potential vulnerability’. Translated, this means that 25.6 million people are living on the knife edge of poverty and could be tipped over into the abyss at any moment.
Of these, just under 8 million are classified as over-indebted, having run up credit cards and loans that they have no way of repaying. On top of this, the FCA report that one in six would ‘struggle’ to survive if their monthly rent or mortgage repayment increased by less than £50.
Hardest hit by debt are young people, with the survey finding that 36% of those in the age range 25 to 34 had overdrawn on their bank accounts in the last 12 months, while 37% had been forced to take out payday loans to survive. This survey follows warnings earlier by the FCA that personal debt was ‘spiralling out of control’ with the head of the FCA reporting that he was ‘concerned about the sheer number of people who need loans to make ends meet’, citing a particular concern about those on zero-hours contracts and working in the gig economy who are forced to rely on payday lenders just to get by.
With 50% of adults struggling under a mountain of personal debt, the FCA and the Bank of England are terrified that any increase in interest rates will push 25.6 million people into having to default on all these loans and debts, a scale of defaults that would crash the banks and financial institutions overnight.
While the FCA and Bank of England can see clearly that this debt bubble is about to explode, they have absolutely no solutions. Last month, the Bank’s governor, Mark Carney, instructed every bank in the UK to put aside £11.4 billion extra capital in the next 18 months in anticipation of mass defaults.
Considering that the total personal debt in the UK is running at £1.5 trillion this amount won’t stop banks and finance companies going down when the bubble bursts. Indeed, as the inflation rate increases in Britain to a new high of 3%, and is expected to go way beyond, the Bank is widely expected to increase interest rates from 0.25% to 0.5% in November in a desperate attempt to bring inflation under control.
Price inflation of basic goods plus any increase in the interest rates mean the cost of repaying the interest on debt will force millions of working people into default. This is the prospect that is giving the Bank and the FCA nightmares: millions of people unable to repay debt on credit cards, bank loans, car leases, rents and mortgages which will bring the whole financial system and industry crashing down.
It will crucially mean that millions of workers and young people will be told by this bankrupt capitalist system that their only future is to be thrown onto the streets, work for wages that won’t even cover the cost of food and shelter and be forced to live off the charity of food banks.
Already the drive by the capitalist class to make workers and their families pay for the world crisis of capitalism through austerity cuts to wages and the welfare state has had a revolutionising effect on the working class and youth.
The impending crash of the capitalist system under the weight of debt makes the overthrow of bankrupt capitalism now a matter of historical necessity for every worker and young person through the victory of the socialist revolution and advancing to a workers government that will expropriate the banks and bosses, cancel all debt and introduce a planned socialist economy.