families on the financial brink – this isn’t going to get easier

The National debtline tells us that household bills are pushing people into debt. There’s a big picture here, and it’s ugly.

source: Changing Household Budgets, National debtline https://www.nationaldebtline.org/EW/Documents/Changing%20household%20budgets.pdf
source: Changing Household Budgets, National Debtline

People are losing the fight with inflation

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.”

Hemingway, The Sun also Rises

The reason for that is that people are short the cumulative difference between the yellow line and the dark one – they are losing the fight about 1% a year. That adds up.

Up until 2007 it seems a lot of debt trouble was due to basically stupid spending on Stuff. It’s possible to fight that – buy less consumer shit and learn to say No to your kids in the way that these folk don’t.


That sort of spending tends to show up in the form of revolving credit card debt and personal loans. While there are serious problems with that sort of spending, it is tractable, because nobody actually needs a new pair of heels, iPad or new mobile phone.

The personal finance blogosphere has many sterling examples of people who have overcome the Beast of consumer spending. So much pre-2007 debt was basically a lack of self-control. That concept is terribly old-fashioned and of course it’s so unfair when you can’t afford the stuff that you’re entitled to, but even for one of these pampered princesses it’s not a matter of life and death. Because consumer spending is about wants, not needs.

I haven’t seen the programme and I’m not sure I’d want to give it too much headspace. However, from the summary I have some sympathy for the children, who are growing up in a value-free desert without map or compass and being ill-prepared for the time when they will have to make their own money choices. By people who lack the self-awareness to know when to stop. It’s bad enough to do that to yourself, but to do that to a child’s plastic mind is a dreadful injustice.

While I’m happy to say that I have managed to avoid stupid consumer spending with money I didn’t have, I managed enough stupid consumer spending with money I did have. That’s not so bad – I give the credit to competent parenting, introducing me to the Micawber doctrine.

If you ain’t got it, don’t spend it, son

Not that hard, eh? Unfortunately there were three exceptions to that rule [ref]housing, which most people can’t do without borrowing and is not normally a wasting asset, investing in productive assets in a business context and education if it would make me richer or happier. These are particularly hard risk assessments to do for a twenty-something[/ref], so I saved my stupid spending with money I didn’t have for the most toxic asset class Britain has to offer – housing. And got away with it – just.

It’s always about families,[ref]I am using family in the way the press use it, which is to imply one or more adults and one or more dependent children[/ref] and the way the economy is going, an increasing number of people can’t afford to have children. Not because they won’t be able to afford to keep them in designer labels and smartphones. But because they can’t afford to keep them to a minimum standard of Maslow’s lower levels – warm enough and with enough to eat.

The wants are a pain but it’s the needs that are a bastard, things like water and power. You can actually live in a bedsit without power – I’ve done so for the odd week as a student when I didn’t have any money for the meter or it wasn’t in 50ps and it’s no big deal. But there’s a story behind the trend

More households are vulnerable to problem debt and are not benefiting from the economic upturn, research shows

Debtline carries on

“The gradual erosion of some families’ surplus income in the face of rising prices has led to a new generation of debt problems – one to which more people are vulnerable, one which is harder to resolve and one which has no definitive solution,”

This shouldn’t come as too much of a surprise. We are designing an economy with

A secular move towards winner-takes-all

There are structural changes in the employment market that we never anticipated[ref]These are secular in the economic sense, as opposed to being irreligious[/ref]. The increasing mobility and virtual value-add of work is concentrating power towards smaller sectors of the workforce and towards capital. Because you can move information at a much lower cost than in the past, and a lot of added value to goods and services is in the form of Mind rather than Stuff, capital is responding. It makes sense where you need human input to pay rockstar wages to a smaller part of the workforce at the highest skill level, and try and automate everything else. Apple and Google take the #1 and #2 world slots by market capitalisation – and most of their product is Mind. Just how unusual this is can be seen by the fact that the massive oil firm ExxonMobil is beaten into third place – the first company that has Real People™ doing Real Stuff™.

ExxonMobil - Real Men doing Real Stuff
ExxonMobil – Real Men doing Real Stuff

That money talks, and it’s paying more and more to a smaller part of the workforce. That’s because they can afford to chase up the high skill tail of the talent bell-curve, because the output of Mind is much more scalable than Stuff. If a skill is normally distributed then the really skilled 0.1% of individuals above the 3 sigma mark may well be worth paying 1000 times more than someone of average ability, if you end up selling more than 1000 times as many units because of the value they add. Real stuff doesn’t scale that well – if you’re mining coal then even a really, really skilled miner is probably not so Stakhanovite that they can get 1000 times the output of an average miner. Physical limitations on throughput often place extra bottlenecks with Real Stuff.

If we look at pre-oil societies, each market town would have, say, their own blacksmith and carpenter, that meant even the moderately skilled could hold their own. Even if there were a 3σ artisan 100 miles away shifting all your horseshoes and wardrobes from him to you would jack up the cost. We have gradually eroded these transport and transmission costs. Even in real stuff Britain outsources a lot of ‘carpentry’ to Ikea – because we can shift goods cheaper, although I’m not sure that Ikea is a 3σ talent! We use robots to make our mechanically propelled horses these days so the blacksmith is neither here nor there. If we want tools we order ’em up on the intertubes, the ‘smith is probably in China.

London shows us where this is going – the south east is where the work is in the UK, particularly in the dematerialised area of finance and other industries requiring Mind like media. So pay goes up, and the price of accommodation goes up. It’s therefore not that surprising that poor families are being moved out of the city, because rents are being jacked up. A young Ermine saw the writing on the wall 25 years ago, came to the conclusion that despite the great lifestyle he was too poor to live in London where he grew up and went to university. So he moved out. Eventually London will become a city-state like Singapore. It will generate lots of GDP – even now in it’s non-city-state form it’s 22% of the UK GDP, with it’s 8.3 million people being only 13% of the UK population. I found it surprising that the South East including London generates 45% of the UK’s GDP. Those poor families can’t fight that. The edge the young Ermine had was I saw it coming and was prepared to take elective action to jump before I was pushed.

that concentration is bad news for most people

because there are more below the skills threshold than above it, and the line is drifting up. It’s great news if you’re on the talented side. Though beware the gradual shift to the right of that bell curve.

Of work suitable for less stellar talents, much is being outsourced to lower-cost regions. This eroding of families income relative to the cost of essentials will continue, because they aren’t adding as much value as they were before. They may be able to afford the iPad, but not the roof containing it as the years go by. The Telegraph opined that London is becoming a workhouse for the young. Although they said it’s no place for old men, it’s no place for families either.

They need to start consuming less. These problems were clear for the middle classes a couple of years ago. This seems to be a secular trend – Stuff is getting cheaper while services get dearer. Services that affect families are accommodation, power and childcare. Accommodation is already a dreadful mess in Britain, we seem to have a whole bunch of perverse incentives that started with Thatcher destroying social housing. Apologists for her policy say if a council tenant buys under Right to Buy they don’t take any accommodation out of service – they’re still living in the house they occupied as a council tenant. That is true, but, when you look at what has happened to housebuilding in the UK Thatcher pole-axed it because councils don’t build much any more and housing associations failed to take up the slack.

post-war housebuilding
post-war housebuilding

So the price goes up. Energy is going up because there’s more competition for the finite resource, and in a peculiar twist of fate it is being loaded to pay for insulating the houses of the poor. Well, those that have houses, of course.

Childcare is a service, so it is not very scalable, and regulation seems to be upping the cost. For many families there will come a point where the amount the lower-earning adult earns is going to be less than the amount paid out in childcare. On the upside the child gets to see more of its parents. On the downside I’ve it sets the adult back in their career. Life is full of choices I guess. If there is only one adult in the family then I guess they’re SOL unless they have a valuable skill and the gift of the gab. Every which way this is not easy, and it’s not going to get easier.

For more ambitious families, child-related services include university, and private schooling. It’s all going up faster than inflation, because they need skilled labour, and there’s competition from  mobile aspirational third culture consumers. However, these guys are probably not the ones struggling to pay the ‘leccy bill.

There’s serious incoming trouble on its way

Interest rates are at historic lows, and may need to rise. Unless associated with remarkable house price falls, the only way to picture that is severe hurt. The British housing market is now a gun that fires on both ends. What is probably in the national interest is for massive falls in the real value of house prices, so that we don’t tie up so much of our national wealth in our homes. But that would shaft no end of people who have already massively overpaid for their homes – making my antics in ’89 look like driving a hard bargain.

People are gonna get hurt, and all of this is against the background of those secular changes. It’s all very well for IDS to charge around saying work is the answer, but I’m not sure it’s as simple as that. At the moment all his designs, if he ever gets them to work, are either telling the unemployed how crap they are for not being up to getting one of the bountiful jobs that there are in the UK, or pushing them into poorly paying jobs. Maybe we need a change in the unemployment figures, from people in work to man-hours worked, and some way of tracking the median household takehome.

I don’t think this is a moan for the good old days

When I was at school I watched the punk Arthur Scargill tell us how hellish mining was, as he held the nation to ransom with his flying pickets and secondary action in the 1970s. They fought like hell to keep those jobs in the next decade, and yet Art was right. You only have to see the toll in China to see that this isn’t a safe place of work.

That sort of revisionism is critiqued on the right by the likes of Tim Worstall and a little more gently in  in Why does Joe Public love sweatshops. I’ve tried to avoid that problem – if the New Economy produced work across the ability spectrum there wouldn’t be so much of a problem. My observation is more general, of the winner-takes-all and the trend towards capital and the exceptionally able. It is possible that we are going through a future shock – after all the 5 day work week wasn’t written in stone and previous generations had different patterns determined by the demands and structures of their economies – the trend has been downward. It’s possible the John Maynard Keynes’ Economic Possibilities for our Grandchildren may come to pass. But at the moment work is polarising, and we are telling a lot of people of average ability that they are worthless, while the likes of Duncan-Smith pretends that if only they get off their asses there would be loads of work for them. Perhaps the resurgent economy will fix this, but if it is fixing it, Natonal Debtline seem to be pointing to a deeper malaise.

We need more honesty in this debate. On the one hand we could stay as we are. Old money will become more important as will high ability – either will give you enough to handle the system and become part of the 1%, both will give you an express ticket. There’s a cost to that, which will eventually look like razor wire, armed guards and watchtowers to keep the disaffected and disenfrachised 99% from doing some DIY redistribution. There is the alternative of Martin Ford’s The Lights in the Tunnel and the citizen’s wage. There are no doubt other alternatives. But it isn’t the 1950s and 1960s any more. There may be plenty of unfilled jobs and plenty of unemployed. It’s not necessarily true that the shape of the pegs match the shape of the holes.

How did you go bankrupt?

Slowly at first, then all of a sudden

How I first heard Hemingway quoted


Bloomin’ heck, apparently the Ermine has company in Oxfam, which is charged with pumping out agitprop 🙂

the Oxfam version of this
the Oxfam version of this

Seems a bit hard to be charged with being a commie bastard for making the observation that shit’s going down. Okay so I’m not necessarily with Oxfam on the benefit cuts and I view zero-hour contracts as part of un(der)employment.



10 thoughts on “families on the financial brink – this isn’t going to get easier”

  1. Its not really that hard though is it, Britain is a very rich country

    Build houses

    Build power plants

    Generate jobs

    Never happen though will it, too many vested interests


  2. Don’t think it’s that easy. Building houses would lower housing costs, which would be good for most people, but I’m not sure about the jobs effect.

    When I was working on the TV systems of L2012 Olympics when it was being built I was staggered by how few people were employed on site. The athlete’s village canteen had the capacity for a couple of hundred people at a time tops, and they only needed two tills to cope. These guys built 15 tower blocks and a load of infrastructure.

    There weren’t that many Brits in the trainees when I did the safety training either 😉 I was amazed at how much site grunt work has been mechanised – where were the hod-carriers and general gophers of a couple of decades ago.


  3. @Ermine

    Training and other government policy could rectify the construction industries preference for imported labour pretty easily

    Its just a matter of political will

    I think the Olympic Park will house about 40,000 people when its completed

    In order to make up 30 years lost ground we should be building a dozen of those a year for the next 20 years

    What you see on the site is part of the story, multiples of jobs are created behind the scenes like manufacturing the preassembled pieces that were put taken to the site and the machinery to put all that together on/off site

    Instead the UK spends £25bn a year on housing benefit

    Dont even get me started on the 12-13% guaranteed returns offered to foreign governments to build infrastructure in the UK when the government can borrow for 20 years at about 3%


  4. All interesting stuff and pretty spot on.

    So, you are coming up to your 2nd year retirement anniversary – I’m sure it’s on the cards but it would be great to get a update post on how it’s all going?


  5. However, some commentators point out that there isn;’t much evidence for a housing shortage in the UK.

    Rising house prices themselves may be evidence of a speculative bubble, but that’s not the same as a housing shortage. Average rents simply haven’t ballooned in the same way as the capital prices of residential real estate.

    Here’s Simon Nixon in the Wall Street Journal on the matter: http://blogs.wsj.com/simonnixon/2014/06/02/whats-driving-uk-house-prices/

    Of course some “ordinary” people will get hurt if the house-price bubble bursts, just like you were in the post-MIRAS meltdown of the early 1990s. This is due to Brits closing their eyes to the dangers of leveraged real-estate purchase.


  6. I would say there is plenty of evidence for shortage in selected areas.

    Take the country as a whole, and it seems the number of houses per capita has been stable (as too has the more relevant stat number of houses per household). Both have grown about 7-8% over the last decade. (It’s not clear how the average house size and quality has changed though.) However, the (good) job supply has not grown evenly.

    Don’t be under the impression rents in the capital are cheap. I’m sure you’ve all had a laugh/cry at this: http://now-here-this.timeout.com/2014/06/03/depressing-flat-advert-of-the-day/

    Don’t forget the various stresses that make renting in the capital miserable, either.



    I’m very angry that my taxes are being used to actively make my life more miserable.

    On the plus side, perhaps childcare should be expensive – or rather, the people performing such a valuable service should be paid properly and treated well. If that means subsidising them more, so be it, but remember, having kids is a choice.


  7. “we seem to have a whole bunch of perverse incentives that started with Thatcher destroying social housing.” Oh come now – she destroyed not a single house. The trouble with housing started with Lloyd George’s Rent Act, and accelerated with the planning system introduced after The War.


  8. @Jonathan – the averages conceals the jobs concentration trends that mean we haven’t got enough houses where the jobs are. That 45% of GDP being produced from southeast of a line from the Wash so about Portsmouth, and let’s face it half of that concentrated into Greater London, says as much. It’s odd that better communications, which we thought would distribute work has ended up concentrating it. Greg’s report from the bleeding edge shows the result.

    @Trevor that was an interesting article! Did not these credit controls get swept away with lifting of capital controls – it’s hard to see how you can have credit controls with out capital controls in a globalised world.

    @dearieme The thought of Maggie at the controls of a bomber is diverting although not quite what I meant 🙂 That house construction chart shows a clear drop as social housing construction falls by about three quarters, and never got up again.

    @MrCareful I’m on the case 😉


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