Hard times are a comin’

The UK economy is going through a turbulent phase. Although not quite at the depths of the Greek or Spanish economy, hard times are a comin’. Greece and Spain gives us an insight into what may happen, with increased levels of destitution, prostitution and despair, accompanied by brutal crack downs from a state seeking to control the popular anger. As austerity and its discontent sweep Europe, in each country the manifestations of the economic regime being imposed have their own flavour. It is worth then looking at what impacts this will have on Scotland and the UK as a whole. Taking each of the major areas of essential expenditure that households have and considering the likely changes gives us a look at where the likely pressure points will be

The cost of food is rising, and the poor UK summer is likely to add to that pressure. Up until recently, outwith small pockets of severe deprivation and asylum seekers, food security has not been an issue affecting significant numbers of people in the UK. This is changing – foodbanks which had previously primarily provided support in times of crisis are being called on regularly to support those who are at risk of going hungry on a chronic basis. Food is critical – it is the only essential that has no credit attached (unlike housing or utilities) and cannot be dispensed with (unlike transport or communications). As such it is, both the only are where people must have current cash/access to generalised credit and also the most discretionary of essential purchases.

We can see corporate responses to the cost of food in the changes in the branding offered at major supermarkets. The “luxury” lines and exotic foodstuffs are being replaced with expansions in “basics” branded foodstuffs, reflecting consumers desires to keep food costs down. However the days of 19p fishfingers and 10p beans are behind us. The “basics” lines are inflating reflecting the general level of inflation. While those who are relatively better off may be able to manage to cope with other rising costs by saving on their food bill by trading down to less desirable brands, those who were already reliant on cheaper lines to keep them within budget have seen remarkable rises.

Individual responses to these rises have been varied. More people are growing their own vegetables, however this requires access to land. For those with gardens or allotments, a vegetable patch will take away some of the pressure, however for many people, particularly those living in urban conurbations, without access to land, and unable to obtain an allotment as demand for them rises, this isn’t an option. Less reliance on expensive pre-prepared meals and cheaper ingredients can also assist people reduce food costs, however preparing and cooking meals involves a level of skill that is not universal, a range of store-cupboard basics and equipment that not all households have and involves pressure on energy costs.

Energy costs are soaring. Fuel poverty has been a significant issue for a number of years, with many people struggling to heat their homes in Winter. This is a particular concern in Scotland, one of the coldest places of Europe. Winter fuel allowances are under threat at a time when people are struggling. The confused supply situation caused by deregulation, has left many people paying over the odds for energy as they languish on an expensive tariff. Information about what exactly is the best provider and on which flavour of tariff is hard to come by, sales pitches by reps eager for your business are not.

Most people pay for their fuel through direct debit or quarterly billing. Energy companies undertake not to cut people off in the depths of winter and claim to work with those who are unable to pay to maintain their supply, but cut-off is the ultimate sanction for bounced direct debits and unpaid bills. The alternative is card meter – a much more expensive option, chosen primarily by those who have no bank account through which to pay bills or set up transfers, or indeed who need to keep their spending flexible. It is they who will see most problems. While those who have been paying over the odds may manage to keep rising energy costs manageable by changing suppliers or tariffs, those who rely on meters are more locked in and vulnerable to rises.

All forms of transport costs are on the rise. The rising cost of petrol sees motorists and public transport users also hit. Those living in rural areas of Scotland, where there is little alternative to car use and essential journeys are largely unwalkable, will be worst affected, with non-essential trips cut down upon, while in cities a greater reliance on walking and cycling can cut costs. Recent moves towards centralisation of essential services, in particular smaller hospitals replaced by a larger one and school mergers have sees a rise in the need for transport. Similarly, the closure of local jobcentres and benefit agencies puts transportation pressure on those who can least afford it.

The demise of the fashion for large showy off-road vehicles towards smaller more practical cars, as well as a rise in the popularity of cycling can be seen as one method by which people have attempted to combat these costs as well as a decline in leisure journeys. For those who commute to work, particularly at difficult to get to locations, which either require a running a car, or multiple buses, there is little alternative but to grin and bear it. Free bus passes have been a lifeline for many disabled and elderly people, allowing them to travel without needing to consider the cost. Removal of these, either through policy or the consequences of many disabled people being denied the gateway benefit that would provide it will see not only a decline in their ability to travel, an undertaking which is already filled with the practical challenges of their age and/or disability, but also the added burden of paying for essential transportation that they had hitherto not faced.

Housing costs have risen massively over the last decade, with the bubbling housing market, the sell-off of council homes and the proliferation of private landlords. Scotland is much less badly affected here than other parts of the UK: the rises have not been so dramatic and there is proportionately more homes in social ownership. The stagnant housing market and pressure on rents as people look to trade down to free up monies for other spending coupled with the low interest rates are likely to see costs stay steady, and possibly even fall however the changes to housing benefit in a time when more and more people are becoming reliant on it

The changes to housing benefit are massive. The benefit caps are unlikely to have the kind of impact in Scotland that they will in London and the South East, and even the 30th decile rule will impact less due to Scotland’s flatter private rentals market. What will have massive effect is the restrictions on bedrooms and the proposed removal of housing benefit for under 25s. The shockwaves will be felt cross-generationally, as young people who do not have the money to pay market rent, many with children are forced to find free or very cheap accommodation. For some there will be a flight to the “family home” seeing older people with vacant childhood bedrooms accommodating their adult children and in some cases grandchildren to prevent them falling into homelessness. For others, this isnt an option. Scotland has a particular issue here as a state with regulations which ensure housing security and safety and have no equivalent in RoUK. Landlords must ensure that any houses rented to multiple households (ie people who are unrelated to one another) meet particular housing standards. This adds to landlord maintenance costs and narrows the margin between the cost of different types of accommodation, reducing the options for those who need cheap rent to live independently. At the same time, councils have a new responsibility from September this year to house all those who are homeless.

What this will do is shift the cost of housing from the UK government budget in the form of housing benefit to Scottish councils. Bereft of council stock, they will then be reliant on expensive alternatives, agency landlords meeting HMO regulations on contract; emergency bed “and breakfast” accommodation and pressure on managed provision such as hostels and homeless units. Legally obliged to house, they will see enormous pressure on a largely neglected area of expenditure, which previously only serviced those that nobody cared about – the lone teen mother, the addict, the youth with family problems, and those seeking refuge from violence, to a much more mainstream clientele – the under 25 with no relative willing to take them in, young families who need housing, the low-paid worker who gets behind on rent and the suddenly redundant who can no longer meet the gap between their rent and the benefit that they will receive.

Should interest rates rise, unlikely, but anything is possible in these turbulent times, a whole new level of pain will be unleashed, with both mortgage holders and landlords unable to meet their commitments.

The level of personal debt in the UK is staggering – at well over a trillion, collectively we owe a massive amount.

Much of that is mortgage debt – taken out when houses were a sure investment, renting was throwing away money, credit was cheap and easily attainable, more and more people have bought houses. Owning your own home was a Thatcherite aspiration, but what has transpired is not a transfer of housing to individuals but a transfer from councils to banks. The council house sell off saw more and more people exercise their right to buy, and proportionately far more homes for sale than for rent have been built in the intervening time. Most homeowners have a mortgage – the primary exceptions being older people (50+) who have completed the payments and the wealthy. Mortgages are secured on homes and any financial shock in times of tightening belts – a redundancy, an unexpected baby, a death or period of ill health can see mortgage arrears build up and ultimately the loss of a home as the bank seeks to repossess.

Unsecured debt is also at record highs. Taken out in the good times, by people who either had no asset to back the loan, or were unwilling to put up such collateral, the gap between the interest rate on loans and credit cards, payday loans and the Bank of England base rate is stunning. Gone are the 0% transfer deals of yore as credit is tightened and hard to comeby, instead as people revert to high standard credit card rates of over 15%, or meet short term cashflow problems with loans at interest in the thousands, unsecured debt is an enormous issue. Under the seven year statute of limitations, a debt which has been unacknowledged for that period of time should be written off. In practice people are chased long after that deadline Рunaware that any correspondence with the creditor constitutes acknowledging the debt and that such debt is written off after the seven year period, people struggle onwards with repayments that make little dent in the outstanding sum. Unpaid debt can eventually lead to bankruptcy in the case of outstanding sums of over £1,500. While for many people with such debt who have no assets with which to raise the money, bankruptcy is futile in attempting to recover money owed, but can have a significant impact on the individual, restricting access to financial products and inaccessibility of further credit as well on restrictions on trading. Bankrupcy is the biggest threat to a sudden fall in status of those who had considered themselves secure. Older homeowners who had not wished to remortgage, small businesswo/men who hit rough times, and younger aspirers confident in their future who hit a wall, or sole traders who find the restrictions on trade that come with bankruptcy onerous.

Student debt is another area in which Scotland will be less hit than RoUK. Although Scottish students leave university with significant levels of debt, incurred to cover living costs, this pales into insignificance compared with students leaving English universities who have had to pay tution fees on top, and who typically stay further away from their families. The repayment of student debt can be avoided while a graduate is on a low income, and is eventually written off if they reach the age of 55 without managing to repay. As graduates hit the margin point for repayment, they see an additional expense at a time when they require stability to keep and maintain their job – this is likely to be a particular and growing pressure point in the RoUK over the coming years with ever rising levels of student debt seeing each cohort of graduates struggling more than the cohort before.

Council tax arrears form another significant component of debt. When the choice of paying tax or heating and filling cupboards presents itself, many skip a payment or two until they get back on track, for some that track never reappears. Council tax debt is the only debt which cannot be written off, it is not covered by the statutes of limitation nor does it expire. In some cases this may see councils or third parties take action against debtors, which result in homeloss, only to find those that they seeked to recover monies from turning up on their doorstep the next day, requiring emergency accommodation. In such a case it makes far more sense for councils to simply write off arrears, as recovery could put more pressure on expenditure, however large scale write offs would see their direct revinue diminish at the same time as cuts in funding from the Scottish Government.

The flipside of the cost of living is of course rising wages. In inflationary times, so long as earnings keep pace with prices, the only impact is on savers and debtors, who see the figures in the bank diminish in significance. Where wages do not keep pace with earnings, the impact is on workers who rely on their wage packet to keep them afloat, dipping into savings or accruing debt to maintain their standard of living. Wages are stagnant, and the downward pressure exerted by the mass redundancies from the public sector togethr with the free labour being pushed into the economy in the form of workfare and the rise of internships keeping costs under control. With unionisation low and jobs hard to come by, it is likely that workers will be unwilling to seek rises as they fear the loss of employment. At the same time, new entrants to the job market will find themselves at a disadvantage as recruitment is slow, with people clinging to their jobs rather than risking a change of employment and the changes to the pension age for women add an additional two years to their working life.

Scotland and the RoUK share much of the same pressures being under the same fiscal governance, but there are significant differences. Differences in housing regulations and structures will see different pressure points in Scotland than in RoUK, with councils mediating some of the impact of the UK government’s changes to the housing benefit system but impacting on their ability to provide essential services; rising transport costs are particularly acute in the north of Scotland and fuel poverty, already more significant in Scotland than in RoUK will rise. In RoUK, the changes to housing benefit without the protection offered here will see the rise of the Rachmanites all over again, as people are squeezed into unsuitable houses at cheap rents with no security of tenure or ability to pressurise the landlords, while graduates in their early twenties will see themselves trapped in terrifying amounts of debt, struggling to find suitable (or even paid) employment, and potentially denied housing benefit, robbing them of domestic security.



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