The Treasury select committee have announced MPs have launched a formal inquiry into household finances.
Personal debt is now at levels unseen since the financial crisis.
According to the government website, the scope of the inquiry will take a broad look at the state of UK household balance sheets, including whether households are saving adequately in the current economic environment, problematic and over-indebtedness, inter-generational issues, lifetime financial planning and the effectiveness of the market in financing solutions and products to low income households.
Commenting on the launch of the inquiry, Nicky Morgan MP, Chair of the Treasury Committee, said:
“The UK’s household saving rate has fallen in the last year. 15 per cent of adults are over-indebted. And there is £200 billion worth of consumer credit in the UK.
It is therefore timely for the Committee to launch an inquiry into household finances.
Debt is a huge emotional burden for people. Unstable personal finances often emerge as problems raised by constituents, so we hope to take evidence for this inquiry from around the country.
We will examine what policies could support households in achieving appropriate levels of saving, and the sustainability of the UK’s household debt and consumer credit.”
The Enquiry will ask the following questions: –
About overall savings levels and balance sheets.
What determines the aggregate level of household net saving and the saving ratio in the macro-economy? Can policy affect the aggregate level of household saving?
What is the “right” level of saving for households and the UK economy more widely, in view of prevailing and potential future economic conditions? To what extent does the UK have a “savings gap”?
How do household balance sheets vary across generations?
About Household lifetime saving and financial planning.
What policies could support households in achieving appropriate levels of saving in cash and pensions? Are current policy interventions (e.g. ISAs) well targeted?
What actions can government take to improve levels of financial awareness and education, and what lessons can be learned in designing the successor to the Money Advice Service?
How do high house prices and declining rates of property ownership among younger generations affect lifetime financial planning?
What role can and should the state pension and triple lock have in supporting lifetime household finances?
Are retiring households receiving adequate and appropriate financial advice following the implementation of pension freedoms?
About household indebtedness and consumer credit and incomes.
Is the overall level of UK household debt and consumer credit sustainable?
What is the scale of and trend in problematic debt and over-indebted households? To what extent is unmanageable debt being manifest in non-credit defaults (e.g. on utilities bills or council tax)?
Have household incomes become more variable as a result of more flexible labour markets and the “gig economy”, and does this raise the need for new credit products?
What are financial regulators doing to monitor the issues of problematic debt? Has the UK financial services market been effective in providing suitable credit products for low income households? What interventions can the Government make, including “breathing space” schemes?
The Bank of England recently increased the cost of borrowing from 0.25% to 0.5%. Although interest rates still remain historically low after they were slashed following the referendum, reversing the emergency rate cut. This was undertaken following the referendum to avert a recession.
While the economy has avoided a slump since the referendum vote, households have taken on more debt to cope with the rising cost of living sparked by the result.
However, experts say that in the first year after the rate rise, interest payments on credit cards, personal loans, car finance and overdrafts are expected to be as much as £465m more expensive for the nation as a whole.
The investigation will be seen as a significant intervention by the new Treasury select committee chair, Nicky Morgan, who was one of the leading remain campaigners among Conservative MPs ahead of the Brexit vote. She has also opened an enquiry into the preparedness for a no-deal Brexit and the nature of the country’s future trading relationship with the EU.
According to the Money Advice Service, there are now 8.3 million people in the UK with problem debts. Government figures published last month also showed applications for individual voluntary arrangements – a means of managing personal debt – reached their highest levels since they were introduced in 1987.
Despite the lowest levels of unemployment since the mid 1970s ‘real wages’ have fallen. The Inquiry will attempt to measure, using the ‘household savings ratio’ how much money individuals are saving for retirement or for a rainy day out of their disposable income. Indications are levels have fallen to their lowest since the mid 1960s.
The inquiry comes amid concerns, too, for the growing intergenerational divide, as well as other issues such as lifetime financial planning and ‘no deal’ fears over Brexit. Millennials are now facing worse living standards than their parents, amid weak wage growth and rising rental costs and difficulty getting on to the housing ladder.