Dominic Raab, Conservative MP for Esher & Walton, has an interesting piece in this morning’s Telegraph saying we should be careful not to blame Brussels for our own, home made problems, and in particular excessive indebtedness. Yet a survey by the Office for National Statistics, published this morning, finds that to the extent that we are up to our necks in debt, it really doesn’t bother us very much.
As is well known, UK households have one of the highest levels of indebtedness relative to income anywhere in the world. Yet the vast majority of this debt relates to mortgages on property, which actually, when you think about it, is only a form of front end loaded rental, only you get to own the property at the end of it.
According to the ONS, this property debt now stands at £847.9bn, up 3 per cent on 2006/08. This is a mighty big sum, amounting to well over a half of annual GDP, but the curiosity is that rather than worrying the pants off us, most of us don’t seem to care. Only 13.6 per cent of those with property debt thought it to be “a heavy burden”, down from 15.2 per cent in 2006/08. The percentage of people thinking it was “no problem at all” actually rose from 46.8 per cent to 49.5 per cent.
This may have something to do with the fact that interest rates are at rock bottom, with people generally expecting them to remain there. The cost of servicing a large mortgage is therefore not so bad. But actually the figures also suggest that the problem of excessive mortgage debt is a comparatively limited one restricted to a quite small minority of households.
Fewer than two out of every five households had any outstanding debt on their main property at all, while half of those with debt owed less £75,000. Obviously, the highest levels of debt are found in London, but London is also the most prosperous area of the economy, with relatively fast growth.
The big point is that housing wealth far outweighs housing debts. Add in financial assets such as pension savings on top, and household assets are some six to seven times higher than the debt. So in a sense, we are right not to care.
Britain remains an extraordinarily wealthy country, even though, a separate ONS analysis also published today shows Britain slipping from fifth to twelfth place in terms of disposable income per head in the international league table. But even this, we should perhaps not be too concerned about, since it is mainly caused by devaluation.
So we can all stop worrying then? Not so fast. Public debt is rocketing, while the entitlement promise burdens taxpayers with possibly intolerable future liabilities. Without big improvements in competitiveness, these debts will soon become a real, as opposed to an imagined, burden.
This article first appeared on the Telegraph blog 14th May 2013