POLITICIANS AND pundits have marked the new year with panic over the state of the global economy. They fear that global capitalism could slide into even greater instability, and slump.
They also know that the one thing that has so far kept the British economy growing could quickly unravel with horrific consequences. Britain's economic growth is based on a so called 'consumer boom' -people's spending.
But that spending is based on a vast mountain of debt, one which could at any moment come crashing down and plunge millions of people into misery. Millions are already living through a debt crisis. In the last year Citizens Advice Bureaux advisers have taken on over a million new cases.
'Debt is the number one issue why people come for advice at Citizens Advice Bureau offices,' says Rachel Boyes, a welfare rights worker in Scarborough. 'The month in, month out insecurity gets people down. It affects their health and confidence. People come into our offices with piles of letters they're too terrified to open. Credit card companies hound people constantly. They threaten people with bailiffs. After Christmas we face a huge spate of cases. There is lots of pressure on people to buy presents for their kids. People can spend years paying back their debt.'
Some of the hardest hit are people on low incomes, or who have lost their jobs. 'There is no respite. It is just horrific,' says Rachel. 'There are horrible stories of people who are working and have bought a car. Then they've lost their job. They have to sell their car, don't get as much as they paid for it, and they're still in debt. Some people on disability benefit are forced to use that to pay back their debts. There are tales of people with learning difficulties who have got credit card applications through the post, run up huge debts on one, and then got another card. People have to pay off these debts for years. There doesn't seem to be an end to it.'
'Credit firms take over lives'
'THE AVERAGE debt people face is £10,000,' says Theresa Goss, who works as a money adviser in Cardiff.
For millions of people with jobs it is already a constant struggle to keep up debt or credit card payments. For a growing number that struggle ends in failure 'Maybe they've lost their job, become ill, they're disabled or a relationship has broken up,' explains Theresa The impact of debt can be horrific.
'The clients I see, about a quarter of them have mental health problems. A third are ill. A lot are disabled or have been made redundant. They're suffering from stress or have had a nervous breakdown,' says Theresa. 'They don't always get the benefits they're entitled to when they lose jobs. If people are made redundant then under the Jobseeker's Allowance, if they've got a mortgage after 1995, they don't get any assistance for 39 weeks. You can easily lose your home.'
In desperation people can turn to loan companies. Over three million households are now reliant on moneylenders, many of whom routinely charge over 150 percent interest for cash loans. 'Lots of people depend on loan companies to survive,' says Theresa. 'They lend you a small amount and then charge a huge amount of interest on it. They do weekly collections and put people under a lot of pressure to pay up. They encourage you to take out more loans to pay the last loan. These companies pressure people to neglect their council tax and TV licences to pay them. These are things that you can go to prison for not paying. They play on people's fears. They threaten much more than they can do. Catalogue companies threaten people with losing their homes if they don't pay up. Sometimes they threaten to break into the house to get their money back.'
It is not just the smaller loan companies that put people under pressure. So do banks, credit card companies and some of the biggest finance companies in Britain. They bombard people in jobs, and especially those with mortgages, with constant offers of more loans, new credit cards, more debt.
Then they are ruthless in getting their money back, plus profit in the form in interest. 'The credit card companies want to take people's lives over. They don't care,' says Theresa. 'A client of mine was dying of cancer. Lloyds and TSB were still ringing him the week before he died. It was very distressing for him and his wife. They're not interested in how people live. The debt is the most important thing to them.'
Boom to bust
THE 'consumer boom' of the last few years has been partly fuelled by the rapid rise of house prices. House prices are a key factor in Britain's economy. This is because the lack of decent and affordable social housing has pushed a high proportion of people in this country compared to others into becoming mortgage payers.
Rising house prices have encouraged people to believe they have more wealth and so to borrow more against the 'value' of their home. The remortgaging of homes is at record levels, accounting for 43 percent of lending last October.
People have been borrowing record amounts, of up to £4 billion a month, against the value of their homes. Relatively low interest rates have also encouraged people to borrow too. Many commentators fear that the house price boom could burst, just as the last such boom did in the late 1980s.
The consequences of the last house price crash in the late 1980s were horrific, with soaring repossessions. Now things could be worse still, with the whole debt-fuelled 'consumer boom' coming crashing down if house prices falter.
And any slump in consumer spending could tip the whole economy into wider recession, throwing more people out of work and sending the economy into a downward spiral which would spell misery for millions. That is the dismal prospect for 2003, five years after New Labour pledged 'no more boom or bust'.
New scam on job figures
WHEN IN opposition New Labour spokespeople rightly used to slam the Tories for fiddling the real unemployment figures. Yet the government is doing exactly the same now, according to a study by Paul Bivand, head of research at the Centre for Economic and Social Inclusion. Official unemployment figures fell by 6,200 in November.
But they would have risen instead if the 6,600 people who stopped claiming Jobseeker's Allowance to join government training schemes that month had been included. The government's New Deal scheme forces people onto training schemes and temporarily off benefits.
When they have finished the training most return to claim Jobseeker's Allowance, but as new claimants.