In this series Luke explores the Eight Modern Giants introduced by Economist Guy Standing in his recent report Basic Income as Common Dividends. This third article focuses on debt and how austerity has shifted public debt into private debt, burdening the most vulnerable. Luke goes on to discuss how falling wages have meant the anxiety and stress of debt has been taken on simply to maintain living standards. He then concludes the article by discussing how a Basic Income will help limit debt and reduce the insecurity and negative mental effects it currently has.
Luke Brotherdale Smith, Citizen’s Basic Income Network Scotland Volunteer
The third giant Standing talks about as posing a threat to modern Britain is debt, namely private debt. Private debt is very much an invisible giant, with the media and government often focussing on public debt, the deficit and so on. Meanwhile the larger and more dangerous giant of household and individual debt is often forgotten or ignored. With increasing uncertainty over work andmore a more insecure welfare state, a Basic Income will increase people’s control and certainty over their income, guarding against involuntary private debt… But more on that later.
I don’t know if anyone still remembers that guy David Cameron? You know the one in the suit, supports Aston Villa..or was it West Ham? He likes farm animals, instigated a rather significant referendum then ran off into the sunset… Ring any bells? Well if you do remember him, you’ll almost certainly remember him going on about ‘the deficit’ and using that as justification for austerity (cutting public services & welfare to smithereens). But no matter how many times poor Dave banged on about public debt being caused by irresponsible spending on welfare, it didn’t change the truth: large public debt was created by bailing out the banks after the financial crash in 2008. And you’ll never guess who footed the bill for the bankers’ failure… Every household and family in the UK.
So long story short, we were sold a lie. We were told austerity was necessary due to overspending and we all needed to ‘tighten our belts’ after the financial crash. But in reality, it was (and still is) a con in order to use the public’s taxes to bail out the banks, rather than funding the NHS or schools. Since 2010 we have seen a systematic reduction in spending on education, healthcare, the police force, welfare and just about everything else you could imagine (except MPs’ pay of course). But what does all this have to do with private debt? Here’s another somewhat oversimplified explanation by way of example:
Imagine you’re earning combined work and benefits of say £100 pounds a year (only just below minimum wage!).The amount you spend on food, rent, school uniforms for your kids and all your other essentials is £95 a year. Happy days – you’re just about surviving. But because some bankers fucked the economy and the government didn’t want to see their rich pals struggle, public spending is cut to reduce public debt. Now after your benefits and housing allowance are cut, you’re only earning £90 a year. Your annual spending remains at £95 a year because you still need to pay rent and your kids still need to eat. David Cameron shouts down the TV “we’re all in this together”, but sadly that doesn’t pay the bills. So how do you finance that £5 a year in spending? Through borrowing money and getting into private debt.
Private debt has exploded as many families (not just the very poorest) are having to borrow money, private debt now averages over £15,000 per household. Congratulations to the government for cutting public debt, it has now been passed onto us. Rather than austerity being some kind of ‘grown up’, necessary political decision, the government has simply chosen to shift public debt into private debt, often onto the shoulders of the most vulnerable in society. Doesn’t seem like overly responsible governance to me.
The sustained attack on public services and welfare has been compounded by stagnating wages, rising livings costs and increased insecurity of work. Theresa May is like a worn-out record going on about ‘record employment’ but when you get beyond this rhetoric, you see the mess we’re in. Over 900,000 people are on zero hours contracts, meaning they have no guarantee on the hours they will work. Almost 60% of people in poverty have someone in their household in work. So much for ‘work is the best route out of poverty’. The bottom line is that wages aren’t high enough and at the same time the government is cutting services and social security. And what happens when costs rise whilst wages don’t? People are forced into debt to simply maintain their standard of living. Basically, we’re a lot more fucked than most of us realised, aren’t we? To summarise in a nifty little equation:
wage stagnation + rising living costs + benefit cuts + cuts to public services = in work poverty + rising private debt
But what does this all actually mean? We are still operating at a kind of removed and abstract picture, talking about public deficits and throwing around big figures. I think something I really want to do with these articles is bring these ‘giants’ to a relatable, human level. Because we’re not rational economic agents, we’re not numbers on a spreadsheet. Private debt has hugely negative impacts on people’s physical and mental wellbeing. The stress related to debt is a permanent sword of Damocles hanging above often the heads of the most vulnerable. It’s just another danger and source of anxiety, alongside everyday stresses like getting enough hours at work, paying rent and putting food on the table, therefore worsening all the great insecurities of modern life. It is the added certainty and security of a Basic Income that can lessen this burden and support people’s wellbeing. The current anxiety tormenting the lives of those in debt is compounded by the stigma and negative portrayal of private debt. People in debt are regularly labelled as irresponsible, blamed solely for their own problems, ‘they’re clearly lazy and don’t work enough’. This heightens the mental health challenges and marginalises those in the most vulnerable positions, who are forced into debt through no fault of their own. It isn’t just an economic inconvenience, these are real lives burdened and fundamentally endangered, due to policy decisions. I hope when you reflect on the state of the economy, its insecurity and low wages, it becomes evident that work no longer unequivocally protects you from poverty, thus private debt is no consequence of laziness or avoidance of paid work.I If we take a second to look at how the deficit has been shifted from the government’s budget to the household budgets of everyday people, it is clear it is not those in debt who are irresponsible, it is in fact those in power.
What can a Basic Income do to help tackle this crisis of private debt? Well unfortunately a Basic Income cannot eradicate private debt. But it can help limit it. Through giving people a guaranteed monthly income, they will have greater control over their finances, which will help limit involuntary private debt greatly. A number of Basic Income (or similarly schemed) pilots have shown even small sub-basic levels of income help to reduce private debt. Take the 2008 Namibian pilot which despite only lasting one year saw average household debt fall from N$1,215 to N$772. The Alaska Permanent Fund sees the population given profits from the oil industry in the form of common dividends (similar to a Basic Income) and one of the many positive effects from this has been a fall in private debt. In terms of numerical evidence, this indicates a Basic Income could help limit private debt. But more than this, in terms of human wellbeing, pilots have repeatedly shown a guaranteed income greatly reduces anxiety and mental health issues. Whilst this is something I will focus on in next week’s article on stress, it’s worth considering that a limitation and reduction in private debt would be a hugely positive thing for human wellbeing.Something more valuable than any economic indicator.
This blog is one of a series looking at Guy Standing’s recently published report, written for the Shadow Chancellor, ‘Basic Income as a Common Dividends’. Influenced of course by Beveridge, Standing reflects on the eight modern giants he sees as stalking modern Britain. He comments on how these giants are having a protracted negative effect on society as well as the economy, and how a Basic Income can be a key tool in combatting the growing challenges these giants pose. In the next few weeks, we will be releasing a series of articles analysing Standing’s eight giants and delving further into how the Basic Income can (and will) combat them.
The giants are inequality, insecurity, debt, stress, precarity, automation, ecological crises and the rise of neo-fascism and the far right