We shouldn't criticise Gordon
Private debt is running at nearly five times the public borrowing of the Chancellor of the Exchequer
I was in Glasgow airport and a few minutes early for my flight. Normally, I would walk determinedly past the woman with the clipboard set to ask me questions about my opinions on whatever. But having evaded the last dozen or so young clipboard-bearers who have approached me, this time I thought, what the hell? I'll answer her questions; she's only doing a thankless job. In fact, as became clear within 30 seconds, I was being sold a credit card. I stopped the interview immediately, but too late: last Friday morning, the card duly arrived.
There was no formal check on my income, credit history or how many other credit cards I might hold, beyond taking my word about my income. Now, if I choose, I have another card to join my existing armoury. 'Welcome,' it says on the introductory letter. 'Start spending, start earning.' On the back of the offer letter, in micro print, which, none the less, I am urged to read carefully, there are the thinnest details of how the annualised percentage rate of interest (APR) is calculated. This is how credit is marketed these days.
We owe a cool £120 billion to Britain's credit-card companies. But as the Treasury and Civil Service Committee observed scathingly last week in its report on credit cards, the way we are sold credit cards and subsequently ripped off by the sky-high APRs is 'irresponsible' and 'unfair'; some consumers are 'sleepwalking into financial disaster'. It is impossible to be make comparisons between cards, said the committee, because the calculations about costs and rates are so varied.
Credit cards are marketed as if debt is easy to handle; the checks made by the companies are scant; and the whole industry is regulated with indulgent passivity by the Office of Fair Trading and the Department of Trade and Industry. The MPs, judging by my experience, are completely right.
Yet I doubt much will happen. Credit-card debt, like our mortgages - sold no less aggressively with parallel lack of care and transparency - are private transactions. And in conservative times, the basic view is that private is best and we should look out for ourselves. If companies are lending imprudently, that is their look-out. If consumers are being ripped off, then they shouldn't enter the contract. The presumption is that this realm of private is a superior moral universe into which the state and regulator should not intrude - or only as a last resort.
The banking industry's reaction is already clear. There will be a voluntary code next year in which every credit card will be marketed with an honesty box to allow comparison with others. The state can keep out, even if it was the palpable threat of state action that made them act. To get into debt is a democratic right, and to discriminate against the poor or foolish having the chance to exercise that right would be wrong. British households in the round have so much equity in their homes that the amount of credit is manageable. Select Committees, the OFT and the DTI are meddlesome and have no economic or moral case to get involved.
And yet. Credit card and mortgage debt have been growing at more than 10 per cent per annum for nearly a decade; the proportion of total private debt expressed as a proportion of GDP is nearly twice what it was 15 years ago, standing at more than 65 per cent of GDP.
The insouciance with which this is regarded, compared to the level of public debt, is startling. Gordon Brown has been subject to stern lectures by a bizarre coalition of the OECD, the EU, the Institute for Fiscal Studies and, last week, the IMF for daring to lift public debt as a proportion of GDP to 35 per cent, little more than a fifth of the level of private debt. The airwaves and newspapers are full of shrill economists warning of nemesis, an impending crisis of first magnitude, unless the Chancellor either raises taxes or cuts spending by up to £12bn a year.
It is an extraordinary ideological prism through which to look at the world. This month alone, we will rack up £13bn of credit-card debt in the run-up to Christmas. Some £40bn will have been withdrawn from our houses through remortgages in 2003. None of this can be criticised because it is private debt and private spending. Yet it has colossal economic consequences. Without it, there would be no continuing consumer boom, the great prop, along with the rise in government spending, of the British economy.
But at some level, private debt becomes genuinely unsustainable in a way public debt does not. Its privateness does not excuse it from having to be repaid. The Bank of England said last week that it is pressing for the banks to form a £2bn safety net if a bank gets into difficulties over unpaid debts; be sure that if and when one does, the risk of a wider default will be so real that the Government will have to step in.
But the bizarre coalition insists it is only the Chancellor's spending and borrowing plans that menace the economy, not irresponsible credit card and mortgage lending. He is urged to be restrained for, as the IMF says, faithfully parroting the Conservative line, public spending on health and education is showing uncertain results (unlike virtuous credit-card debt, say, which by comparison we must suppose is an universally valuable use of resources).
Yet as the Rowntree Foundation recently revealed, the NHS is showing measurable improvements. Mr Brown's spending increases are beginning to improve public services, filling the breach of decades of public neglect which requires ever higher investment just to stand still and which are boosting the economy just when world recession requires it.
Is it sustainable? You bet your life. Even the IMF had to acknowledge the economic record was enviable and the fiscal position at heart sustainable. The argument is about the timing of possibly introducing a tightening that represents a fraction of 1 per cent of GDP. In one respect, this is a tribute to Brown's rules which are still standing after nearly seven years, a postwar record.
His critics accept their validity but criticise him within that framework. Brown's crime is that he didn't foresee a £5bn shortfall of tax receipts this year and reckons the receipts in the next two years will return, albeit at a slower rate than in the past, hardly the assumption of a reckless spendthrift.
But suppose he is completely wrong. Even then, the level of public debt would still be well below 40 per cent of GDP, the level he chooses to constrain himself with. The Conservative proposition is that he should raise taxes or cut spending to avoid this risk, while the ever-expanding army of people flogging us credit cards and mortgages remains sacrosanct. So far, Brown has held the line. He should stick to his last. Let's have an honest conversation about debt, what is risky and what is not.
