Thanks a second time to Michael Johnson for asking a salient question about recently published data

If we compare four months in 2019 and 2020 we see a £20.5 billion behavioural swing:

At the end of February 2020, total outstanding consumer credit lending stood at £224.9 billion.  At  the end of October 2020 it was down 9% to £205.5 billion.

Average credit card debt per household exhibits a similar phenomenon: it was £2,204 at the end of September 2020, down 15% from £2,595 end-January 2020.

Alleviation of poverty?

However, according to Johnson, “this data masks the underlying socio-demographic story.  Unsurprisingly, it is the higher income households who are repaying their consumer debt”.

One of the contentions of the Nest Insight research was that there becomes a point that the emotional benefits of feeling you are saving exceed the financial cost of not repaying debt.

But is this real world thinking or the group-think of sociologists within their bubble? My thought is that the poverty that is being experienced is not among those who can get on a Deliveroo bike and energise themselves out of trouble but amongst those who are tied to caring for children or elderly dependents for whom there is neither time to earn or scope to reduce spending.

Not a pandemic for the poor or old?

Personal debt  is down  and personal savings are up

But how much of this huge spike in savings that we’ve seen in the past nine months  is returning to the economy through investment in long term assets? Is this money finding its way into pensions or simply sitting on deposit because of our craving for liquidity?

And if this money sits on the sidelines of economic utility, how is Government planning to get it back into circulation – to solve some social ills?

Now is a good time to think about a plan for Britain’s older aged. For the first time, we may have the capacity to seed funds to ensure independency when faculties decline.

The worst hit groups in the pandemic have been the old and those who are in urban areas, often because of the concentration of immigration to areas with social housing and available employment. The focus of the pandemic’s misery has been in these large urban areas and on the sections of society with the least resource to “do a Cummings”.

Time for some redistribution?

If, as Johnson contends, those saving are those who have wealth and those paying off debt are those with the security of “higher household incomes”, we must ask about what is left. What is left for the people and communities where debt has increased as household incomes have fallen, where savings have not increased.

What we cannot allow to happen, as happened after the 2008 crash is for the wealthy to be cushioned , while those on low incomes suffer the burden of indirect taxes and cuts in social services.

The obvious answer is an increase in direct taxation both on incomes and on capital. But the corollary is to incentivise the return of savings to the real economy through worthwhile purposeful investment. Here pensions have a great part to play.