Kate Bradley looks at how the consumer credit economy has expanded since Thatcher, its real effects on the working class, and how we can fight back against an economy based on consumer debt. With additions and edits by Sebastian Cooke.
The next months carry with them a near-inevitable worldwide financial crash, hot on the heels of the world economic crisis just over a decade ago. Any faltering ‘economic recovery’ we have experienced in Britain since 2008 cannot be divorced from the phenomenon of spiralling consumer debt, and this spiral looks set to worsen as coronavirus’s financial consequences start to play out. We will see people lose their jobs in even greater numbers, default on their mortgages and unsecured debts, and lose their homes. Simultaneously, we will see the government and banks try to facilitate and push consumers towards more borrowing. Stoking borrowing is the neoliberal default setting, but as this economic slump kicks in, it will be magnified by the desire to privatise the cost of this crisis.
Legacies of Thatcher
To understand how we got here, we have to tell a ghost story: the story of Margaret Thatcher. Between 1979 and 1990, Thatcher oversaw the decimation of British manufacturing and primary industries, and followed it up with a programme of deregulation of the finance markets to refocus the UK economy around consumer credit.
In a pincer movement, large numbers of working class people were made unemployed at the same time the ‘sub-prime lending market’ opened up. Restrictions on lenders were relaxed to enable poorer people to borrow to buy a house, or to obtain unsecured credit at high interest rates, whilst home-ownership was presented by the government as personal advancement – a sign of ‘going up in the world’. In reality, it was mostly consumer debt that was ‘going up’.
Thirty years on from Thatcher, we have financial deregulation to thank for a huge number of the great woes of our time. The artificial inflation of house prices created by the use of borrowing to fund house purchases means that many mortgages can now run for as long as 40 years, making home ownership far less of an improvement on renting than it was presented to be, since the risk of repossession during financial difficulty remains throughout a borrower’s life. Many at the ‘bottom’ of the market are unable to buy unless they obtain credit from one of the many cowboy sub-prime lenders, whose punitive and borderline criminal practices (such as paying commissions to brokers to get customers who should have gone elsewhere) have been proven in several landmark court cases such as Hurstanger v Wilson 2007. (Meanwhile, globally, by capturing a market share in poorer communities like never before, mortgage lending markets across the world have become the basis of the current stage of global capitalism, as former UN Special Rapporteur Raquel Rolnik describes in painstaking depth in her 2019 book, Urban Warfare: Housing Under the Empire of Finance.)
Another consequence of financial deregulation has been the boom in ‘payday lending’. Payday lenders allow people to take out small loans, often less than £100, then charge astronomically high interest on a daily basis, with the idea that the loan will be paid back a few days or weeks later on ‘pay day’. Since the 1990s, payday lenders have increased their profits exponentially, and the Consumer Finance Association (of which several of the major payday lending companies are members) describe short-term high-cost credit as ‘a modern credit revolution‘.
The shift has certainly been radical, driving low-income borrowers into debt cycles that are incredibly traumatic and materially detrimental. In my line of work challenging lenders over irresponsible lending, I have seen individuals with as many as 40 payday loans taken out over a period of less than a year. Eventually, borrowing from Peter to pay off Paul has to end – and it usually ends with court hearings, County Court Judgments (CCJs), a plummeting credit rating, and some heavy-handed knocks on the door.
Following the 2008 financial crash, which was itself a consequence of the irresponsible lending of the sub-prime mortgage markets in the US and elsewhere, the consumer credit market has grown extremely quickly, masking the fall in real-terms wages since the recession. According to statistics from the Money Charity, household debt of all types (including mortgages) has risen between January 2008 and March 2020 by £280 billion, leaving every adult with an average of £27,581 in debt. The real consequences of this can be measured: 318 people a day were declared insolvent or bankrupt in England and Wales in October to December 2019, equivalent to one person every 4 minutes and 32 seconds. In the same period, 14 properties were repossessed every day.
Though an innocuous-sounding phrase, ‘financial deregulation’ shouldn’t be read as value neutral. It has brought the hounds to the door of millions of working class people.
A revolution? If only.
Consumer debt and coronavirus: a crisis waiting to happen
According to the Office for Budget Responsibility’s March 2020 forecast, household debt of all types is forecast to rise from £2.068 trillion in 2019-20 to £2.425 trillion in 2023-24. This forecast is pre-Covid-19. (The Money Charity)
Since total consumer debt was already on a rapid upward trajectory before coronavirus, this pandemic seems set to trigger a tsunami of defaults, repossessions, or near misses financed by the next wave of ill-advised lending. The finance industry is nervous about the risks to their profits posed by the pandemic – after all, several big lenders have already gone bust during this crisis, including the highstreet stalwart rent-to-own provider BrightHouse, and several payday lenders. Forgive me if I don’t weep.
The Financial Conduct Authority (FCA), in an attempt to regulate this shitshow, has published guidelines that instruct lenders to offer ‘forbearance measures’ to consumers who are struggling with their debts, including interest freezes and payment holidays. However useful this is, the onus is on the debtor to approach their creditors, and many less scrupulous lenders are simply not listening, or creating obstructive processes to reduce the number of people applying for forbearance. Plus, the schemes are only proposed for a short period of a few months, after which (pending an extension) the Wild West of debt collection can begin again in earnest.
In June, the Treasury announced a £38 million package of financial support to debt advice providers helping people affected by coronavirus, paid for in part by an increased ‘Debt Advice Levy’ on consumer credit providers. Although helpful, this once again falls short of radical action, leaving debt advisers (many of which are profit-making companies) to provide palliative care to the victims of an industry that has been allowed to create its own crises for decades.
Businesses of all sectors have also found themselves caught in debt traps since 2008, leading to a great number of zombie companies in the UK. Zombie companies are businesses which continue to trade but have very high levels of debt relative to their profits, meaning they survive purely because of access to cheap credit (a sad inversion of the predatory rates that individual consumers face). This means they are able to handle interest payments but have no scope to ever free themselves from the principal borrowed.
KPMG analysts suggested in 2019 that 8% of UK listed companies could meet this definition of a zombie company. As the government’s coronavirus economic response involved offering billions of pounds of loans funnelled through the financial sector to struggling businesses, this means the scheme may save businesses from oblivion but trap them in an undead existence for the rest of time. In turn, this traps workers in low-paid jobs where it’s harder to fight for pay rises. The debt cycle continues.
You can’t fight debt with debt
To solve these problems, we need nothing short of a complete re-ordering of the economic system. We need to go further than the centre-left neoliberal economists and policy-makers, including many of those at the FCA and in big banks, whose only answer to spiralling debt is greater regulation to provide ‘responsible’ credit for poor borrowers. Instead, we should be working on reorienting away from a consumer credit-based economy, reducing poverty and the need for credit by fighting for higher wages and more spending on communities, for investment in sustainable employment and housing, and for the reduction of wealthy inequality through all possible means.
Following the pandemic, socialists in the legal sector will be on the front lines defending against wrongful repossessions, CCJs and Section 8 evictions, challenging unenforceable debts and irresponsible lending, and providing support and advice. Knowledge of the Consumer Credit Act 1974 can help stymie the poor practices of debt purchasers, and open up routes to compensation and debt write-offs for consumers – the field in which my firm specialises. If you want to read more, the website DebtCamel provides a lot of legal advice for free, and currently has an excellent section on coronavirus.
Other initiatives have taken creative approaches to challenging debt. Last year, a co-operative project called Bank Job bought up and blew up £1.2 million in payday loan debt after buying it for a fraction of its face value on the debt purchasing market. This echoes David Graeber’s descriptions in Debt: The First 5000 Years of radical uprisings against debts, where debtors would smash up the records of their debts during rebellions and revolutions. Could a similar feat now be achieved at the press of a button?
There are also, of course, more radical ways to challenge debt. Activist groups using collective and direct action to resist debt collection and enforcement will be vital in resisting a new wave of forced, debt-driven impoverishment in the months and years to come.