TUC urges government to help boost pay as debt nears record levels
The TUC has urged the next government to take action to boost pay as it warned that borrowing to top up wages was poised to breach the record levels hit just before the financial crisis of a decade ago.
Frances O’Grady, the TUC general secretary, expressed alarm at the steady increase in unsecured debt – which excludes mortgages – and called for a higher minimum wage and an end to the tough pay curbs in the public sector.
“The surge in household debt is putting the economy in the danger zone,” O’Grady said, in response to a TUC analysis showing that the average unsecured debt per household stood at £13,200 last year – only £100 below the record reached in 2007.
On the basis of forecasts for the future course of the economy produced by the independent Office for Budget Responsibility, the TUC said household debt would reach £13,900 this year and top £15,000 before the end of the next parliament.
The TUC said rising household debt reflected the squeeze on living standards caused by a “lost decade” in which wages are worth £20 a week less than they were before the financial crisis.
“We’ve got this problem because wages haven’t recovered,” O’Grady said. “Credit cards and payday loans are helping to prop up household spending for now, but millions of families are running on empty.
“The next government must act urgently to deliver the higher wages Britain needs for sustainable growth. They must boost the minimum wage, and end pay restrictions for public servants like nurses, firefighters and midwives.”
After a brief period in 2015 and 2016 when low inflation boosted living standards, the cost of living is again rising more quickly than wages. Inflation is currently running at 2.7%, while average earnings are increasing by just over 2% a year.
The TUC said the financial pressures on households were evident from the near-300,000 county court debt judgments against consumers in the first three months of 2017 – a 35% increase over the same period in 2016 and the sharpest quarterly increase for a decade.
The Bank of England has also expressed its concerns about the rise in unsecured debt, announcing a review of consumer credit in its latest inflation report.
Unsecured household debt includes borrowing on credit cards, store cards, payday loans, student debt and car loans.
The TUC said student loans and car loans were significant factors in the growth of unsecured household debt, but said there should be no complacency about their contribution since both added to the problem of cash-strapped households saddled with large debts to service every month. Money spent on paying off debt led to weaker demand and spending, the TUC added.
The TUC said it should be of concern to all political parties that the economy was so reliant on consumer spending at a time when unsecured debt was close to record levels. The figures for average household debt disguised the true picture since some households had no unsecured debt.
O’Grady said: “A lot more government support is needed for the parts of Britain where well-paid jobs are in short supply. Communities that lack good jobs today could thrive tomorrow if they get proper investment in training, transport links, broadband and decent housing.”