Last week saw the publication of an alarming report from the Children’s Society. It talks about the huge level of household family debt and how this is affecting children across the west midlands. The report tells us that in Wyre Forest 3,521 families have trouble paying debts totalling £13,540,417. This report is certainly shocking, but it is not breaking news. In the report, the Children’s Society is shining a new light on an old problem.
The fact is, household debt ballooned during the pre-crisis years. In 1997 household debt was around £450 billion. By 2008 it had grown to an eye-watering £1.45 trillion. Put another way, in 1997 household debt was around 100% of household income. By 2008 it had ballooned to over 170%. Remember how we were promised that the cycles of boom and bust had been eradicated? That lie was covering up the fact that biggest asset bubble was being financed on the backs of families who were in no way capable of handling that debt.
Since then, household debt has stuck pretty much at the £1.47 trillion level, but household income across the economy has risen with the creation of over a million new jobs, so debt as a percentage of household income has fallen to 145%. But whilst economists look at aggregate numbers and whole economy statistics, the fact is that an estimated 6,267 children across Wyre Forest are still vulnerable to pre-crisis debt mountains.
This highlights just how complex sorting out the mess has been. The damage to public finances and to the economy has been staggering. There are still many unanswered questions about the economy at the moment, including why wages are not rising for individuals as fast as inflation. We know that many families are having to work harder to make ends meet.
The government is doing a lot to help. 2.5 million people have been taken out of paying tax, and new business are being created, with over 1.5 million new private sector jobs. The economy is recovering, but with that will come rising interest rates. In my position on the Treasury Committee, I have been arguing that the Bank of England must take care of vulnerable households. They are heading my pleas, but make no mistake, sorting out 13 years of mismanagement of public finances and the wider economy is a long and difficult job.