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Weakening consumer finances show the need for investment, not subsidies

 (ES Composte)
(ES Composte)

Times are tough right now, that’s for sure, and British households have shown remarkable resilience of late. But this resilience is being tested to the max and with very little more to give.

This week saw the release of our latest “Consumer Lending Newsflash”, examining current trends across the entire UK open market and encompassing major price comparison website partners. The findings revealed a 22% overall increase in loan requests in April 2023 compared to the same period last year. Whilst a large proportion of those requests will come from people who are creditworthy and simply looking to consolidate their debts, or indeed finance cars and one-off events like weddings, others won’t be in such a fortunate position.

This surge in loan requests is coming at a time of spiralling housing costs, as fixed-rate mortgage deals for over a million UK families come to an end this year. The limited supply of rental properties is driving up costs for tenants, too. According to Zoopla, rental inflation is running at 11%. And this is reflected in a 29% year-on-year increase in loan requests amongst homeowners with mortgages and an 18% rise amongst renters. It should be noted that housing is by far the largest monthly outgoing for most people.


Looking at the statistics in more granular detail reveals an uneven impact, whereby single- and lower-income households are more exposed. There have been year-on-year increases in loan requests of 144%, 286% and 88% by those who are divorced, separated or widowed respectively, as well as a staggering 195% increase amongst those earning less than £1,000 per month.

Lenders are generally benefiting from interest rate hikes, but they also need to play a role in mitigating the risks associated with mounting consumer debt. Loans can provide relief for people looking to simplify their finances, but they can also compound problems. Irresponsible lending helps no one. And while responsible lending plays a critical role, it can only ever be part of the solution.

The Bank of England is monitoring this situation closely, but it is walking a tightrope between preventing a surge in personal insolvency cases and managing inflation, which is its primary purpose.

Similarly, as huge spikes in housing costs come on stream during the year, the government will be eager to protect the most vulnerable in society. Some may even call for a policy intervention of the kind provided to families during the energy crisis. The difference this time round is the need to recognise that widespread subsidies will undermine the fight against inflation. If the government does anything, it should be highly targeted.

Policy subsidies, however, take up a great deal of government time and obscure the underlying issue which is making us collectively poorer.

The UK has lagged other advanced economies on growth for many years. There are several reasons for this, but the most important is a lack of productivity growth, or the delivery of an incrementally rising economic output per worker. If the UK were able to address this, more wealth would be created per person, and this would be distributed via salary rises and lower prices throughout the economy, driving up living standards. It is no easy task. To make it happen, the UK needs to invest wisely in digitalisation and technology, across the public sector and in partnership with the private sector in strategic industries.

No one government can hope to achieve this over a single Parliament. It requires long-term planning and delivery. But recent breakthroughs in technology – notably in generative AI – show the potential is there. It just needs application and wherewithal to be harnessed.

Nick Harding is Co-Founder & CEO of Fluro