Britain's borrowing binge slowing but consumer debt still far too high

As Citizens Advice sounds alarm over credit card borrowing, the latest figures show only that the rate of increase is slowing

Citizens Advice wants the FCA to crack down harder on credit card lenders (Getty)

There are two conclusions to draw from the latest batch of figures on consumer borrowing from the Bank of England – one economic, one practical.

They are both worrying, albeit for starkly different, indeed opposing, reasons.

The numbers show a 9.8 per cent rise in July, and while that sounds like a lot, and it is a lot, it represents the slowest rate of increase for more than a year.

So to the economic conclusion: It adds still more weight to the various pieces of data showing that the consumer economy is slowing. Inflation, driven by the pathetically weak pound, is crimping people’s spending power, putting household budgets under pressure.

They are a lot less confident about splashing out than they were, and, it appears, a bit less inclined to borrow to do so.

That’s potentially a cause for concern when Brexit created uncertainties mean that there isn’t much likelihood of anything else (business investment for example) out there to pick up the economic slack from consumers reining in.

The flip side, however, is that it is welcome in practical terms.

UK citizens borrow too much. In cash terms, that 9.8 per cent increase represents £1.2bn that Mr and Ms Average are, at some point, going to have to pay back.

The figures were released as Citizens Advice painted a disturbing picture of how they are being encouraged not to do that, but instead to borrow more, by their lenders – specifically, their credit card lenders.

The charity says 18 per cent of those who are struggling financially have seen their limits increased without first asking their credit card providers to do so, compared to 12 per cent among the population as a whole.

Potentially millions of people who really ought to be spending and borrowing less are still being encouraged to do the reverse by lenders who see them as profit pits.

The Financial Conduct Authority (FCA) is at least alive to the issue. Estimating that 3.3m people are in persistent debt, it has opined that these people make a lot of money for credit cards firms, who therefore have little incentive to warn them of the dangers they face, even if the end result is, in some cases, bad debts that they can’t recover.

According to Citizens Advice, only 60 per cent of people struggling with credit card debt were able to reduce it over two years, compared to 72 per cent with a personal loan. Card borrowers paid off £449 over that time period, compared to £620 for loan borrowers.

Regulatory intervention is on its way, with the aim of tackling the issue. The FCA has proposed that lenders contact customers who have been stuck in credit card hell for three years to arrange a plans for them to pay off their outstanding balances more quickly.

Citizens Advice thinks that it should be sooner, and it has a point. It also wants to see a ban on credit card companies raising borrowing limits without permission.

Longer term, what this all highlights is a need for greater financial education. I’m reluctant to suggest putting more pressure on schools, which have to spend far too much time coping with Whitehall diktat as it is.

But we have to start somewhere, and they would appear to be the institutions best equipped for the job.

The UK also needs to move towards a more sustainable economic model, one that is less reliant on consumers maxing out their cards to keep things ticking over.

Just as with debt addicted consumers, however, the first step towards solving that problem is recognising that we have one.