UK Conservatives Speak Out Against Consumer Debt

Last week, the UK's Conservative Party held a Debt Summit in London to tout its new measures aimed to curb consumer spending. Shadow chancellor George Osborne advocated for restrictions on Individual Voluntary Arrangements (IVAs), which are roughly the UK equivalent of a U.S.-style chapter 13 bankruptcy, and for increased money-management education for 11- to 18-year olds. So far, that will all sound familiar to those of who suffered through the 2005 amendments in the US, but the next proposal will not. Osborne also suggested that there be a seven-day cooling off period on retail cards. In other words, a consumer would be prohibited from using a new retail card for seven days after issuance. Not surprisingly, the  British Chamber of Commerce thinks the cooling-off period is a bad idea, which the London Daily Telegraph quoted as saying "People have got to take responsibility for managing their own affairs." There is one thing that merchants fear more than consumers running up massive debts on their credit cards and that is consumers not running up massive debts on their credit cards.

The UK is one of several countries where consumer debt has been increasing. We here in the U.S. tend to think of ourselves as Consumer Debt Central, but that is becoming increasingly less true. The Daily Telegraph story made me curious to go dig up statistics on UK consumer debt to compare them to the United States. The graph to the right is the result with the top line representing the US and the bottom line the UK. As the graph shows, the UK has caught up to the US when considering the amount of consumer credit outstanding expressed as a percentage of gross domestic product. Outstanding consumer credit represents 16.6% of the total annual GDP for both countries. Stated differently, either country would have to devote one-sixth of all its goods and services produced in one year to pay off its outstanding consumer debt.

On a per capita basis, the numbers are also comparable. As of mid-2006, UK consumer credit (expressed in US dollars) is currently about $6,900 compared to a figure of $7,300 for the US. It was not always that way. Adjusted for inflation and stated in 2006 dollars, the UK had per capita consumer debt (expressed in US dollars) of $1,695 in 1993 as compared to $4,467 for the US. Needless to say, the growth in UK consumer debt has far outstripped the US. From 1993 to 2006, consumer debt per capita grew at an annual average rate of 16% in the UK but only 5% in the US.

TECHNICAL NOTES & THANKS--First, a big thanks to Jack Ayer at UC-Davis for bringing this story to my attention. These data are from official government sources in both countries (the Bank of England, UK Office for National Statistics, the US Federal Reserve, the US Bureau of Labor Statistics, and the US Bureau of Economic Analysis). I started the analysis in 1993 because that was the first year consumer debt data were readily available online from the Bank of England. I separately adjusted for inflation based on consumer price indices for each country, and I did currency conversions based on the spot exchange from the Bank of England.