Are we losing our fear of debt and borrowing? Government debt and future spending projections will be hotly disputed right through the general election. But on the home front at least there are some signs of change.

A report out yesterday finds that Scots are increasingly more confident about their ability to repay debts.

Barely one in ten are worried about making future repayments compared to one in four in the last survey in August last year.

According to the latest report on the consumer credit industry, Precious Plastic: How Britons fell back in love with borrowing’ from accountancy giant PwC, half of Scots intend to save more, up from 41 per cent previously.

This is the highest proportion since the financial crisis, and ahead of every UK region with the exception of South East and East of England.

Just over four in ten borrowers pay off their credit cards in full every month, ahead of households in North East England (28 per cent), Wales (31 per cent) and the East Midlands (35 per cent)

That all sounds comforting. But despite the survey revealing a relatively high degree of confidence among consumers about their ability to stay on top of their debts, affordability of the UK’s household debt pile may be a problem in future years.

According to the report, total outstanding unsecured borrowing grew by nearly £20 billion last year, or nine per cent – its fastest rate of growth in more than a decade, to reach £239 billion. This equates to almost £9,000 per household, surpassing, in cash terms, its pre-financial crisis peak.

Challenges lie ahead: outstanding unsecured household borrowing is expected to continue to grow, reaching £10,000 by 2016, with total household debt to income ratio projected to reach around 172% by 2020 – exceeding its previous peak in the run up to the financial crisis.

This increase, coupled with UK household’s vulnerability to interest rises, could leave households over stretched.

For example, PwC analysis indicates that a two percentage point rise in interest rates on total household debt would leave households needing to find an extra £1,000 a year just to cover the additional interest costs.


So it’s not all rosy in the Scottish garden. Steve Davies, Edinburgh based UK retail and commercial banking leader at PwC warns that while most people in Scotland and across Britain are currently in control of their borrowing, and seem confident in their ability to remain so, “there are a few pockets that need to take much more care – namely the squeezed 35-44 year old generation. Some 20 per cent are now borrowing simply to pay for essential items and make ends meet every month.”

He says there is a risk that the combination of increasing household debt to income ratio and future interest rate rises could leave consumers feeling squeezed again, potentially undermining growth for lenders and feeding through to resurgence in bad debt.

Of the £19.7 billion increase in unsecured borrowing in 2014, £9.1 billion (around 46% of the increase) came from student borrowing, PwC estimates that graduates who started university after 2012 could leave with an average debt of £40,000-£50,000.

Some £4.2 billion (around 22% of the increase) came from credit cards.  Total outstanding credit card debt saw rapid growth in 2014, rising above £60bn for the first time since 2011.

Finally, £6.4 billion, (around 32% of the increase) came from other sources, for example personal loans and overdrafts.

Similarly, there appears to be progress on government debt. But here, too, we are far from out of the woods.

Latest UK borrowing figures for the penultimate month of the 2014/15 fiscal year showed the headline borrowing measure at £6.9 billion, whilst expectations had been for £8.4billion. That was an undershoot of February 2014’s borrowing reading by £3.5 billion.

Over the year to date the budget deficit now stands at £81.8 billion compared to £90.6 billion in February 2014.

Osborne’s Budget speech showed that he is still deploying the argument that he is the figure to trust on the economy, taking the UK from ‘austerity to prosperity’; these numbers will certainly do him no harm. But the focus now, as the 7 May General Election approaches, will be on the criticism he faces over the lack of detail on his plans for the sizeable £12 billion or so of welfare bill savings he intends by 2017/18, as opposition parties seek to identify those that will bear the brunt of Osborne’s economic plans.

And is the debt problem really shrinking? Judge for yourself.

When debt is expressed as a percentage of GDP you can make a lot disappear on that basis. In truth, when we look at the cash amounts, the debt total continues to rise, from £1.47 trillion in 2014-15 to £1.5 trillion in 2015-16 and keeps on growing to £1.63 trillion in 2019-20.

No need to worry, then – so long as the economy keeps growing, tax revenues keep climbing and interest rates remain at ultra-low levels. That’s a lot of conditions to depend on.


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