What Will Brexit Mean for Our Household Debt?
3 minute read
Brexit talks span countless sectors and affect people across Britain. No one knows what to expect in the years to come. Most discussions focus on immigration, transitional periods and multi-billion pound exit fees, but what about issues like our household debt? Recently, the global credit agency Moody’s revealed that British consumer debt has reached a whopping £200 billion for the first time since 2008. With billions at stake, it’s important to address the effect Brexit might have on our household debt.
Our first year post-Brexit is looking grim.
A low pound triggered higher inflation, which has risen faster than wages. To make up the shortfall, households have spent more on credit cards. Many Britons simply can’t afford to repay debt right now, so household debt has increased. To combat this, the Bank of England has warned high street banks to practice more sensible lending from September 2017 onward. This sounds like great news for our household debt. Britons won’t have access to as much credit, which reduces our chance of spiralling into more serious debt problems. But what about unforeseeable circumstances like a breadwinner falling ill? Macmillan Cancer Support’s research found that serious illnesses like cancer cost on average £570 a month in lost earnings and extra expenses. Without credit from major financial institutions, households might turn to irresponsible lenders offering much higher interest rates. They’d spiral into debt deeper and faster than if they’d received a loan from their local bank.
But as people say, it’s always darkest before the dawn.
Critics have argued this downturn is our dark period before Brexit fulfils various promises including immigration cuts. Fewer citizens means less competition for jobs. This theory is supported by research findings that youth unemployment has dropped by 13.5% in the year since the Brexit election. More incomes per household would be an effective way of cutting household debt. Brexit could also cut household debt by decreasing expenditure. John Longworth, former director of the British Chambers of Commerce, suggests that removing tariffs could cut clothing and footwear costs by up to 20% and food costs by almost 40%. This reduction in expenditure means households could start paying off debts and reduce their dependency on securing more credit. The positive effects Brexit may have on our household debt sound very promising, but they would depend on government action and the passing of time. With British debt reaching £200 billion and inflation quickly rising, the negative effects on our household debt are happening right now. We can only hope a successful Brexit will undo any damage done before it’s too late.