Many of the communities that voted to leave the EU had one thing in common: they’ve been left behind by our hedge-fund economy and its preoccupation with global finance via the City of London.
A debt map of Britain shows that many of the places that voted for Brexit, including the North East of England and Wales, have some of the highest levels of household debt in the UK.
Abandoned by successive governments with a job market of part time, poorly paid work, many people have lost all financial security in their lives.
Being in debt is the new normal for many on low incomes, with devastating effects for these people and their families — the ultimate ‘poverty premium’ paid for keeping the economy moving along.
We spoke to young people out of work, training and education; self-employed people living on a low income; migrant women supporting their families in London; university students struggling to get by with a debt pile and high housing costs; and a group of active job seekers living in South Wales.
Here’s what they told us:
The UK household debt pile is among the highest in the world with households now borrowing at a rate last seen just before the financial crash in 2008.
Fuelling the economy with debt might have helped the government to feign a recovery from the crisis, but it is in the coming months and years that the fragility of that recovery will become clear.
This means millions of people are living without enough savings to support themselves if they experience a cut in income — and the Governor of the Bank of England Mark Carney has warned that this number of vulnerable households is likely to increase.
You can’t plan or save when you’re struggling to meet everyday costs…
…So getting into debt is often the only option
People on low incomes rely on debt to cover their basic needs because their wages or benefits are no longer enough.
Debt charity StepChange recently estimated that 15% of people — 7.4 million individuals nationally — have turned to debt for essential day-to-day spending.
Debt is the new safety net:
Why is this happening? The recession saw the longest sustained decline in people’s standard of living since UK records began — and no, most people’s bank balances have not recovered.
Real wages fell by a whopping 9% between 2008 and 2013 — and slow growth since risks being wiped off by the economic instability prompted by the UK’s pending departure from the EU.
This puts a lot of pressure on those people without savings — living without a safety net is scary.
Being unable to cover one-off, big and unexpected expenses is a real risk:
It can send you over the edge:
Any savings you manage to get together are required as an emergency backup:
It can feel like you’re out on your own …
Although unemployment has been falling since its peak in 2011, many of the people moving back into work have done so into self-employment or with casual or part-time contracts that provide irregular, and often insecure, incomes.
Public advice services have seen a significant increase in the proportion of in-work clients who are self-employed seeking debt and housing advice.
… and that you’re being exploited
The stress of trying to maintain independence might mean stalling decisions about how to solve a financial problem, or making choices that lead to further problems — such as falling prey to financial scams.
If you’re self-employed, it’s easy to feel isolated
Since the financial crisis, the UK has had the third largest rise in self-employment of any country in the EU: The Bank of England estimates that 15% of the UK workforce is self-employed.
And many are juggling multiple jobs — with part time self-employment now rising 3 times faster than full time self-employment.
Many of these people are on low and precarious incomes. For them, debt is often a way of life.
Asking for help from friends and family is hard
Borrowing money from friends and family is a common reality for those managing on low incomes.
But feeling responsible for a personal short fall in cash is stressful.
And it can go against your morals.
The debt problems people are experiencing are changing. Issues with credit or store cards have declined according to Citizens Advice, but those with household bill arrears have soared.
Analysis from PwC reveals a 60% rise in bad debt levels across the energy utility sector over the last five years, with water utilities not far behind with an increase of 44%.
Affording somewhere to live is getting harder and harder
Housing costs have risen twice as fast as earnings over the past 90 years, making things extremely difficult for those already squeezed.
Turning to credit is, again, the only option for many.
Some students have been taking out short term loans, secured by their student loans, to meet soaring rent costs.
Whose side are the banks on?
Access to a basic bank account is a step between earning money and receiving it, so dealing with banks is an everyday reality for most people.
But banks are not always perceived as being neutral — and can be intimidating.
They can seem distant and detached.
They can seem only interested in people with enough money to make use of savings accounts….
… or in persuading people to take out loans which can lead to more problem debt.
Some of the people we spoke to felt excluded from the financial products that could give them more independence.
But people still rely on the banks
Even when you’re sceptical about banks and scared of them — they still feel like a gatekeeper to your future, and living securely in a home you can call your own.
Which gives banks all the power.
How could things be different?
Break up the banks
Brexit has sent RBS’ share price plummeting, delaying the government’s plans to sell-off its stake in the bank.
Now, we should consider all other options — including breaking it up into a network of truly local people’s banks with a mandate to serve customers and communities, not just maximise profit — bringing economic and social benefits to the communities that voted to leave the EU.
And create new types of banks
The banks are lobbying the EU to bring back securitisation — meaning more incentive for banks to give out debt to people who might not stand a good chance of paying it back — as they can package up this bad debt and sell it on.
We need new types of banks — including more credit unions and new stakeholder banks — that care about their customers and keep money circulating locally, not letting it drain to the City.
Smarter and fairer finance
As well as creating better types of banks, could new forms of peer to peer finance help people bypass them completely?
A collective voice for self-employed people
Strong trade unions are vital for a strong economy — how can we support them to reach out to represent the changing makeup of the UK workforce?
Our unions need to be better networked to reach people moving across sectors and jobs. Can a new, freelancers’ union be part of the solution?
Make housing and energy more affordable
Living costs are rising too fast for people’s earnings to keep up, but there are things we can do — and things being done — to bring the price of housing and energy under control.
NEF is working towards making these ideas a reality in order to help those trapped in a lifetime of debt. Find out more and get involved at: http://www.neweconomics.org/
By Alice Martin, Researcher, NEF
This research is taken from a larger EU level project FESSUD, which NEF has been a part of. We invited marginalised groups in 9 different countries to reflect on and challenge the structures of the financial sector http://fessud.eu/participatory-reflection-wellbeing-financial-sector-wellbeing/ Full results to be published here: http://fessud.eu/work-package-5-finance-well-being/
