Tuesday, 19 September 2017

The Financial Conduct Authority Continues Its Focus on Credit Dependency: A Fundamentally Limited Response Based on a Regressive Culture

In today’s post, the focus will be on the debt bubble that continues to grow by the day. We have looked at the personal debt bubble on a number of occasions here in Financial Regulation Matters, so in this post we will look at the recent comments made by the head of the Financial Conduct Authority (FCA) – Andrew Bailey – and assess whether his views are a. appropriate and b. sufficient enough to garner any sort of change. One of the issues that we see over and over again is that the focus of people’s attention is so narrow that only very limited changes can be affected, and ultimately it is then likely that the underlying causes of the issues will remain and effect society at some point in the future.

We have discussed this issue of the debt bubble a number of times before in Financial Regulation Matters, ranging from analyses regarding those deemed to be ‘financially excluded’ which often leads to credit dependency, to the rapid increase of credit dependency in certain sectors like car purchases and also more systemic warnings moreover. Therefore, it is probably best that instead of returning to those analyses we assess the latest data that suggests the bubble is not only growing but disproportionately affecting certain sectors of society. As The Guardian begins a series of reports into the debt bubble, its first report contains comments from Andrew Bailey who has ‘visited debt charities across the UK’ in order to gain a sense of the plight of those affected by the systemic issues causing the bubble. In visiting these debt charities, Bailey states that he is concerned with the sheer number of people accessing credit to live, and also the insecurity often felt by those that do. In relation to the insecurity felt by those in debt, Bailey discusses how those working in the so-called ‘gig-economy’ are more likely to be affected by credit dependency, with the news that the number of people on ‘zero-hour’ contracts has fallen to a three-year low of 1.4 million people being welcomed as just one component of the solution. Bailey speaks quite openly about the issue of those with ‘erratic incomes’ being unable to meet their financial obligations to a number of lenders, with only ‘frontline debt’ like council tax and utility payments being collected consistently thanks to the use of bailiffs, court orders and repossessions. However, is this focus on the ‘gig economy’ either correct or at least helpful?

The recent breaching of the £200 billion mark for outstanding personal debt has raised concerns, particularly when it is adjoined to the understanding that overall indebtedness is increasing steadily, with the U.K.’s total personal indebtedness standing at £1.6 trillion (the majority of which is mortgage debt at £1.3 trillion). However, whilst some of the statistics do support Bailey’s focusing upon those in the ‘gig-economy’, others allude to a much bigger problem. StepChange have stated that the average of those in arrears with their council tax has risen by over £250 in the last year alone (to £1,012), whilst average utility bill arrears has also risen by £147 (to £668). Yet, the FCA’s research also states that one-in-six of those with personal debt are in ‘financial distress’, with those in that category more likely to be younger, have children, be unemployed and less educated than others. According to the Money Advice Service, there are now 8.3 million people in the U.K. who suffer debt-related problems, with the U.K. now only ranking behind Canada as the most personally indebted nation in the G8. Interestingly, onlookers recently stated that ‘it wasn’t supposed to be this way. The Government’s official forecaster… once predicted that the U.K.’s economic revival would be built on the foundations of business investment, higher exports and an improvement in productivity that would lead to higher wages. It didn’t materialise. Instead a mix of low wages growth, government cutbacks on welfare and public services… have forced millions of households to borrow to buy essentials’. This is precisely the right sentiment, and forces the issue away from this sector or that sector and towards a more holistic assessment; therefore, Bailey’s piecemeal approach based on the sentiment of ‘no one body might solve [the debt crisis] on its own’ is potentially an abdication of duty. For example, focusing on the ‘gig-economy’ downplays reports that household debt, which is incurred to buy essentials, is skyrocketing in areas in which the poor are simply being priced out, like in the larger cities of London, Birmingham, and Cardiff. Whilst the actions of the FCA do help to minimise some of the hurt being felt by those affected, it is not enough. But, is Bailey correct in thinking that the FCA simply cannot tackle the problem alone?

On the one hand he is absolutely correct because the FCA are not tasked with charting the systemic course for the U.K. However, an argument against this is that, as the head of the FCA, Bailey holds considerable influence and could be more proactive in challenging some of the larger issues. Yet, in truth, this may be unfair, because Bailey and the FCA are simply just one small cog in a much larger machine that is predicated upon the concept of ‘wealth extraction’. For some this concept may be controversial, but in reality the demonstration of it is revealed every day. The quote earlier regarding the Government’s forecasting of revival via increased wages, more jobs, and exports, relies on the notion of there being a solid base upon which to build, but that base has gone; Britain alone, since the onset of the Crisis, has pumped almost half a trillion pounds of taxpayer money into the financial system, a move which came after financial elites had been systematically increasing risk in the system for short-term bonuses, awards, and pension packages that made the hundreds of millions sound like hundreds of pounds. Instead of those people being prosecuted for their crimes they have, en masse, avoided punishment, or even a public dressing down and, what’s more, the responsibility for cleaning up their mess has not even been taken on by responsible leaders. Instead of a. punishing offenders harshly to set a deterrent and then b. developing sustainable plans to lift the economy and set it on a safe path, our leaders have shifted to a debt economy whereby those at the bottom (and now the middle) must turn to high-cost debt providers to purchase essentials. This situation represents a systemic abdication of responsibility, and the increase in poverty, indebtedness, physical and mental illness, and a general degradation in society is a testament to disregard that the elite have for the majority of society. Ultimately, the debt bubble will collapse and the likely outcome is that the majority will have to pay for it, but with what is the ultimate question… there is not much left! What is left is this country’s cherished welfare system that has been fought for since its inception, and it is crucial that removing the cost of this societal good is not seen as a way of ‘reducing the burden’ upon those who have pummelled by the financial elite. The only way to stop such behaviour is to align blue-collar and white-collar crime into a combined concept of ‘crime’ – unfortunately, many will read this last statement and dismiss it as wishful thinking which, in reality, demonstrates the extent of the problem we face.

Keywords – debt, personal debt, FCA, poverty, capitalism, elite, white-collar crime, debt bubble, financial regulation, consumer protection, politics, @finregmatters

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