Recently it was revealed by McKinsey, the consultancy, that the UK debt to GDP ratio stood at 507% in the middle of 2011. Robert Peston reminds us that this is up from 487% of GDP in the second quarter of 2008, and, incredibly, from around 300% in 2003 – before the credit boom.
Only Japan is more indebted with its debt to GDP ratio at 512%.
Further still, it is the financial sector, mostly in the city, which accounts for 219% of the debt. Household debt experienced a modest decrease, though is still very high.
To rub our noses in it, the Royal Bank of Scotland - undeterred by the reputation left by Fred “the shred” Goodwin – has a pot of £500m to spread liberally around its investment bankers in bonus pay.
This gave grounds for the Wongaforum – a forum, as you might guess, that talks about all subjects wonga, and beyond – to post on how terrible it is that RBS bankers are set to receive such fortunes, while banks themselves receive a downgrade from Moody’s and the rest of us suffer.
This is because with the banks not doing their jobs properly, not heeding to calls to further roll out basic bank accounts and overdrafts (an intervention which didn’t cause the banking crisis, nor would hurt the banks one iota), forcing people into the hands of pawnbrokers and high street shops who promise to cash cheques for high fees, places like wonga are able to pretend to have the moral high ground.
As Stella Creasy recently put it, “Payday loan companies are trying to promote a veneer of respectability”.
Better still, payday loan companies – which Wonga are despite their own denial – are so acutely aware of how horrid an image loan sharks have, that they will do anything to deflect the notion that they are similar.
And to a large extent this is true, though Wonga are also trying to deflect the notion that they are anything like other payday lenders on the high street.
This is because what this trade boils down to is one where sub-prime consumers are given money at high interest to pay for things we in the west would consider basic necessities. Regardless of whether Wonga are providing a service nobody else delivers (banks especially), profiting from the poor looks bad – and for good reason.
They’ll say they stop people from calling on real loan sharks who charge interest rates of percentages in the tens of thousands, though profit from poverty is still frowned upon.
Wonga will even say they don’t target the sub-prime consumers, but there is not enough money to be made in appealing to the Middle classes who have a distrust of banks, and students alone. Though of course any such proof that Wonga have no desire to target this market is hidden behind what they call commercially sensitive data.
In arguing their case, Wonga end up sounding just like the labour union workers in 1930s America did when arguing that low income earners should not be excluded from the credit market. Why, if everyone else could buy on the promise that money will be paid later on, could they not join in? Why were the banks excluding them?
Effectively, Wonga are trying to make a progressive case for their cause – and this is born out of a realisation that they must shift the image both of the loan shark and the payday lender today.
Let’s not forget, though, that banks are allowing Wonga to have this moral high ground, which means that any campaign effort against the profiteering of the payday loan industry, should target banks too, and call for the retail arm of banks to do its job properly.
Unfortunately, today’s growth figures act as a Rorschach test; the coalition government and its supporters see growth at 0.8% in the third quarter of 2010, and growth for the last six months at 2%. What the opposition will see is a drop of 0.4% when between April and June growth was positioned at 1.2%.
Since growth was forecasted far lower than expected, many – such as Vince Cable, who was said to have a big smile on his face this morning, possibly after finding out the data – are probably just pleased to see a higher figure, not because it is necessarily a good sign for the economy, but simply because it will make for easy smoke and mirrors. Look we can cut and grow, it’s easy.
Others may note that the worst of the cuts have not been factored into the figures yet. It’s important to note that cuts will have been factored in already; the squeeze for many councils started a while ago, redundancies are a reality now, and small and medium businesses (SMEs) are already checking their books with a grimace.
Construction was the real winner with contributions of 4% (p. 3), compared with an increase of 9.5% in the previous quarter, and 11% since Q3 2009 and Q3 2010.
Read in a certain way, today’s figures will prove politically opportune for the Tory/Lib Dem government, which may set back Labour’s current lead in the polls. But it is not mere politicking to point out that the severity of the cuts, spelt out in the CSR last week, have not been entirely factored in, and that growth really needs to be sustained and sustainable.
There is even tension within the government about the road to growth. Vince Cable has recently slammed David Cameron’s optimism, saying that the “sunlit uplands” strategy will not necessarily be the case. If he has any sense about him, Cable’s supposed smile this morning will be matched by caution.
In Cameron’s “new economic dynaims” vision, he wants to “make sure we have a banking sector that is really focused on small business lending … rather than the banks thinking how [they] can become bigger and bigger investment banks.”
Cameron hopes to get those banks which the government has a stakeholder share of, to start lending again and fuelling a private sector revolution.
According to a recent NEF report entitled Where did our money go? the 2009 budget noted that RBS needed to lend an additional £25bn (£9bn – mortgage / £16bn – business); Lloyds an additional £14bn (£3bn – mortgage / £11bn – business); Northern Rock an additional £5bn in 2009 / £3-9bn from 2010 onwards.
After the bailout, there was disappointment that the banks were increasing the bonus pot without actually kickstarting small businesses with money. In an ongoing discussion I had with an acquaintance, I was reminded that the bailout was paid in order to cover liabilities at the time, but the reason behind doing so, and not allowing them to fail, was so they could start lending again – for this is the reason why those banks are too big to fail.