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Mail exclusive: Debt epidemic!

Even apparently well-off people with good jobs have been plunged into the red.

So fumes Monday’s Daily Mail rather breathlessly, hammering its favourite theme: the middle-class under siege. “If the middle classes go broke, the country goes broke,” warns the Mail’s leader.

Bunker Neasden’s chief tormentors: profligate city fat-cats and New Labour - an unholy confederacy if ever there was one. But fear not debt Britons, you’re not alone.

Financial advisers gave examples of how deeply the crisis is biting. They included:

- A TV producer on £70,000 a year, with £26,500 credit card and other debts and £25,500 in loans secured against property;

- An IT consultant on £28,500 who has £28,500 debt and a county court judgment against him.

- A retired bank manager with an income of £40,000 and £110,000 of debt from 20 credit cards and loans.

What with rising food prices, high tax rates and the threat of interest rate rises looming, the “middle classes” probably do have a few things to worry about.

But, per the Mail’s examples… can these people seriously blame the credit crunch? Incurring tens of thousands of pounds of debt - crisis or no crisis, high-taxes or not - isn’t prudent. The “debt crisis” is, in significant part, a problem caused by the middle classes, not one inflicted upon it. The Mail’s news piece rather buries that fact in the third from final para:

Advisers say a large part of the blame for the crisis must be taken by people who have lived the high life with new homes, cars, designer clothes and holidays - all bought on credit.

The leader isn’t so wet, however. Explaining how Labour’s tax policies are actually the problem:

Some may be tempted to say that these people borrowed too heavily when money was cheap, to finance a lifestyle they couldn’t really afford.

Now the credit crunch is biting hard, they must account for the folly of living beyond their means.

But while this is partly true, the real story goes much deeper.

To pay for an unprecedented and largely indiscriminate expansion of public spending… Labour has battered Middle England with a barrage of tax rises.

Well, lets work through those examples. First, there was that TV producer: £70,000 salary, £26,500 credit card debts and £25,500 loans. Total tax paid on that is currently somewhere around £23,000. Cost of servicing those debts without paying them off? Back of the envelope, around £7000+ per year. IT consultant? Tax bill: £7,000. Debt interest: £4500. Retired bank manager (!) Tax bill: £6,900. Interest bill: £17,600.

Not, of course, that any of the above paints an accurate picture of an amorphous “middle class” anyway, but it’s perhaps premature to blame the tax system as torturing the middle-classes. If debt had been incurred proportionally and relative to the amount that tax costs had risen since 1997, then there might be a case to answer.

The pips have begun to squeek.

So too has the Mail.

This entry was posted by Sam Jones on Monday, May 19th, 2008 at 10:26 and is filed under People. Tagged with . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. May 19   23:36 Posted by pegnu [report]

    if everyone earning under £30,000 left London, you’d just end up with a city of very rich people, people living off the proceeds of criminal activity and poor people living on benefits. I don’t know what kind of city that would be but I know it not be very pleasant. I think it is more likely that we are entering a period of correction as our economy rebalances.

  2. May 19   16:39 Posted by Sam Jones [report]

    Oh my God, what have I done.

  3. May 19   15:55 Posted by globalbusiness9@yahoo.com [report]

    I do not believe the issue is financial illetracy. people should not be asked to have an MBA before opting to take a loan. The burden fall squarely on hte lenders who have developed a jargon tht confuses even their peers from other financial sectors. I hereby suggest the introdcution of the Standardized One Page Loan Information or to be soon known as (SOPLI). One page that shows exactly in dollar terms (no inflation adjusting or actialization,….or formulas) how much is due and when during the life of the loan. In case of variable and adjusted rates a clear table showing the exact amount to be paid if the rate remains unchamged with 3 scenarios on each side for up uo and - 5% and a lage print sentence saying that payments can change depending on LIBOR or other providng data on where to find info on LIBOR and other and on the expected regularity of rate adjustment. Voila. Simple. Mr. bernanke, King and trichets, please take note and get this done immeteky. The SOPLI will go a long way in making sue all undrestand whata loan entaails. no point systems or obscure adjustemnts and fees and no fine print either.

  4. May 19   14:47 Posted by OJ@Home [report]

    more seriously though, this is all a case of financial illiteracy. and why shouldn’t people be financially illiterate when they have never been taught even the basics? why do people borrow on credit cards? why do they save money before they’ve paid off their mortgage? why do they think house prices only go up? etc etc.

  5. May 19   14:44 Posted by Finlay [report]

    OJ@Home - thank-you! I was waiting for the Pythonian response.

  6. May 19   14:34 Posted by D Heasman [report]

    I take your point about middle-class people who can’t live the way (they thought) their parents did, but, and I don’t know about you, my parents weren’t middle-class.
    My father installed a bathroom in our house by building it from the foundations up. If your middle-class people were prepared to do that sort of work after working a 48-hour week as an electrical fitter, they’d have a house in London too.
    What it boils down to is that there are now more middle-class people than there are jobs paying (what used to be) middle-class salaries. The solution, as everyone from Peter Drucker on down will tell you, is to get off your arse, use your brain and set up in business for yourself.

  7. May 19   14:26 Posted by Monkey [report]

    pegnu - agreed there are people who need to be in London. Doctors, nurses etc. Ultimately it is down to the government to either pay these key sector workers more, tax them less or supply decent state owned housing at discounted rents. No point selling affordable housing - that only lasts for the first generation of tennant befoe they bank their windfall capital gain and move on. For everyone else market forces are going to dictate who can live in London and who can’t . We may be entering into a period of correction which will make it easier for lower income workers to live in London - assuming there are any jobs left!

  8. May 19   14:21 Posted by OJ@Home [report]

    Finlay, house? car? holiday? bloody luxury! when i were a lad we had [……….cardboard box on motorway…..] and you tell young people that today and they won’t believe it…

  9. May 19   14:19 Posted by Ed [report]

    Monkey - yeah but presumably his role would have entailed some sort of management of personal loans and applying his bank’s lending criteria… scary stuff if he’s that stupid. (though of course we likely don’t know the full facts)

    What this article has done is make me feel a lot better about my comparitively tiny credit card debts - standard Mail tactics: show the middle classes lives they can’t afford, and simultaneously the lives of those who are in a much worse position about whom we can feel superior!!

  10. May 19   14:12 Posted by Monkey [report]

    Ed - I am sure his friends in the bank fixed him up and he probably knew all the tricks. Like a ex drug dealer who leaves the trade with a severe coke habit - plenty of contacts to hook him up and supply his ‘credit’ fix - but eventually his ‘friends’ will want paying!

    Oh man c’mon just one more card …. ahhh yeah that hit the spot! sniff

  11. May 19   14:11 Posted by pegnu [report]

    Monkey - sure but then who’s going to do all the work? £30,000 is way above the national average and I am guessing the majority of people living in Greater London earn less than £30,000. That’s an awful lot of people who are potentially disaffected. The problem is the UK economy is lop-sided and completely centered on London and financial services. I have often wondered how all these people manage to spend so much money going out in the various bars - including people I know are earning similar amounts to me but seem to be able to spend more money. I suspect now that a lot of it must have been going on their credit cards.

  12. May 19   14:08 Posted by Ed [report]

    It’s precisely bank managers of the sort that run up £110k of personal debt on £40k salary that have got many people into the mess they now find themselves.

    How on earth did he still get any sort of credit limit even after £20k?

  13. May 19   13:54 Posted by S West [report]

    The Mail has turned us against each other… it’s evil influence should not be brought back to this sanctuary of finance.

  14. May 19   13:50 Posted by Monkey [report]

    pegnu - if I was still on 30k a year or less and with no hope of increasing that salary substantially then I would have no choice but to leave London if I wanted to settle down. It is a harsh reality of life in London. My sister earns considerably more than 30k (around £50k ish) and even she with her husbands salary of £60 k has moved out to Zone 6 to settle down. There are just too many people willing to make too many sacrifices to live in London for anything to change - I mean all the bars are full despite the prices, all the attractions and restaurants (except Aberdeen steakhouse or whatever it is called) are busy! There are also lots of other places to live in the UK where the cost of living is not so bad and if you dont work in finance the choices of where to live are more varied. I have to live in London to do what I do - otherwise I would probably be in Portsmouth

  15. May 19   13:37 Posted by pegnu [report]

    I have nothing but contempt for people who live extravagant lifestyles funded by credit but people earning less than £30,000 a year in jobs that require good degrees can not afford to live a decent lifestyle in London unless they live like students in shared flats - in fact they can barely afford anything after paying rent/mortgage and other basic living costs. I am constantly astonished at how much better the standard of living is in other European cities when I visit friends and colleagues there.

  16. May 19   13:03 Posted by Woody [report]

    Pegnu - like your comment and you are right. Lots of young people have taken on big mortgages just to get on the property ladder and who can blame them? How will they ever afford to have kids and lose the female income?

  17. May 19   12:29 Posted by Finlay [report]

    The culture of entitlement and jealousy is creating a generation of discontent and debt

    Growing up, my parents managed to buy a house, but we had one old car, one holiday in the UK, - in a caravan, handed down clothes through the family, hardly ever ate out and all went to state school. But we were ‘appy….

    Now I listen to people with two cars, detached house, children in private school, three holidays a year , buying designer clothes telling me that they are strapped for cash and unhappy. Really?

  18. May 19   12:22 Posted by Monkey [report]

    I actually blame the media for propagating a dissatisfaction in living standards. Everyone believes that they are entitled, nay deserve, some media fed perfect lifestyle that no-one actually lives. East-enders, Hollyoaks, no sense of perspective. Even the Apprentice! “This is the lifestyle the house-mates can expect to live” bull! What? 5m house and Marco Pierre White as your call order chef? On £100k a year? But people believe it. You need to earn at least £200k a year to be mildly affluent in London - much more if you have a wife and kids to support. Apprentice lifestye: £500k plus.

  19. May 19   12:12 Posted by Anonymous [report]

    Private school fees are the real killer - I don’t have holidays, fancy clothes or eat out -it all goes on the kids education.

  20. May 19   12:09 Posted by pegnu [report]

    D Heasman - I do not read the Mail or like the paper but I think your comment is pretty arrogant. It is quite clear that living standards have fallen - most youngish middle class people I know who don’t work in finance can barely afford to buy a house let alone start a family. This wasn’t the case for their parents. The fact that people are upset about this has nothing to do with race or class hatred - what are you on about?

  21. May 19   11:45 Posted by D Heasman [report]

    “Obviously, the article is referring to the stagnant
    real purchasing power of the middle class, after taxes, housing, pension deductions, etc.”

    Only ostensibly. It’s actually refering to the middle classes’ endless whingeing and pathetic sense of entitlement, bitterness and resentment peppered with race- and class- hatred. Nothing new there.

  22. May 19   11:35 Posted by Duh... [report]

    Obviously, the article is referring to the stagnant
    real purchasing power of the middle class, after taxes, housing, pension deductions, etc.

    This has been trending lower and lower, with only house
    equity to mitigated this, but now it too is falling.

    Sigh…

    What i do not understand, is how a serious writer can pretend these trends do not exist, despite real, repeated figures to the contrary.

  23. May 19   11:07 Posted by pegnu [report]

    Monkey - conspicuous consumption is not classy therefore I would suggest that you have more class than you think! :)

  24. May 19   11:03 Posted by Sam Jones [report]

    The Mail can also spell. Apologies for typos in the above.
    t

  25. May 19   10:57 Posted by taxloss [report]

    Sam, you’ve put me the horrible position of having to defend the Mail. Fair enough that people have made a rod for their own backs, but fiscal stimulus right now would be handy.

    You’ve taken into account Income Tax and employee’s NI, but there is no mention of Council Tax, VAT, fuel duty, employer’s NI, the increased government debt burden, public sector pensions and all the other stealth taxes.

    If the country was one of these examples, it would be the retired bank manager - superficially well off, but clearly in trouble longer term.

  26. May 19   10:55 Posted by Monkey [report]

    I am glad that bank manager has retired … it’s bank managers with fiscal understanding like his that created the debt monster we have now. 20 credit cards!!

    Fortunately I am far too tight to spend money frivilously like that and also, having absolutely no class, my tastes allow me to live within my means anyway. Provided I can get the occassional takeaway pizza and a few guinness’s I am a happy man.

    Also being single(ish) helps :)

  27. May 19   10:54 Posted by pegnu [report]

    the problem is they’ve all probably got huge mortgages that they are now struggling to pay.

  28. May 19   10:52 Posted by S West [report]

    Can I blame my wobbly tooth on the credit crunch?

This post is closed to further comments.