Household debt is rising by a staggering £1.7 billion a month. Every family on this island has unsecured debts averaging £4,426 (the 1998 average was £2,231).
Mortgages aside, over half this borrowing has been done on credit cards. But even on these figures, personal debt is nothing compared to the amount chancellor Gordon Brown plans to borrow. Lower than expected tax receipts, plus the small matter of the £2.5 billion cost of an on-going war, means the government is going to have to borrow £10 billion more this year than ministers had planned.
Government and consumers alike are borrowing more and more. A fifth of people who borrow do so to get out of existing financial difficulties. For others, though, low interest rates, low unemployment and house price inflation have encouraged a spending spree which can only be storing up serious problems for the future. Even a slight increase in interest rates could make debt repayments unsustainable for a lot of us.
Inevitably, clouds are gathering. The rapid rise in house prices is slackening and retail sales over Christmas fell compared to last year. In his November pre-Budget report Brown reduced his estimates for economic growth in 2004.
If harder times are on the way, the government will have to raise taxes or cut back expenditure on things like the NHS. No wonder Blair and Brown are worried.
The chancellor has written to the Pay Review Bodies, telling them to peg pay rises for public service workers to just 2%. In fact, an assault on worker's wages has already begun. Many government departments have offered below-inflation increases, leading the PCS trade union to ballot its 114,000 civil service members.
Britain's future economic prospects are likely to be determined by exchange markets, currency dealers and money traders. The problem is that exchange rate volatility could force the Bank of England to raise interest rates. That would make all the debt much more expensive.
The government would cut back spending, so reducing demand, as well as sitting on public servants' pay, thereby reducing the amount they have to spend.
(Source: — lost!)