Money lent through personal loans and credit cards climbed by £629m from August to September, the Bank of England says
Unsecured lending rose to a seven-month high in September, according to data released by the Bank of England.
Borrowing through personal loans and other forms of credit not secured against property climbed £629m from August to September to £208.6bn, compared to a £478m increase from July to August.
Howard Archer, chief UK economist for IHS Global Insight, said the rise suggested that “stressed borrowing” is on the increase, “with more people having to borrow to help finance their spending as a consequence of the extended squeeze on their purchasing power from elevated inflation, low wage growth and tighter fiscal policy. In addition, job losses are rising”.
However, he added: “Unsecured consumer credit remains extremely low compared to past levels and the indications are that consumer appetite for taking on new borrowing is still low, while there is also a strong desire of many consumers to reduce their debt.
“Consumer desire to get a tighter grip on their finances is the consequence of current very low and falling consumer confidence, which reflects heightened concern over the outlook for the economy and jobs.”
VAT has disproportionately increased pressure on the most financially vulnerable, according to data released by the Office for National Statistics, which does not include the effect of the 2.5% rise in VAT to 20% at the beginning of 2011.
Its figures show that the poorest fifth of UK households spent a higher proportion of their outgoings on discretionary goods and services that attracted VAT in 2009/10 than in 1986.
Analysis shows that in 1986 the poorest fifth of households spent 55% of their weekly expenditure on non-VATable items, compared with 45% on VATable items. However, by 2001/02 this had reversed, with these households spending on average 42% on items which didn’t attract VAT compared with 58% on items which did. In 2009/10 the reversal was still evident, but to a slightly lesser extent, with the poorest households spending on average 45% of their total weekly expenditure on non-VATable items compared with 55% that did.
Overall, the data shows the poorest fifth of households pay more in VAT as a percentage of their disposable income than the richest fifth.
After taking into account changes in prices, the poorest fifth of households spent on average about 250% more on new cars, holidays abroad, meals out, audio/visual goods (including TVs) and photographic equipment in 2009/10 than in 1986. This compares to an increase of 20% for the richest households.
David Breger of chartered accountants HW Fisher & Company said: “This research reinforces what is widely perceived to be the fundamental inequality at the heart of VAT: the poor pay more of it relative to their incomes than the wealthy.
“It is clear that the government needs to reconsider the full effect of VAT, which is inherently regressive. But as yet nobody has been able to come up with a suitable solution.
“In a strong economy VAT is arguably less of an issue, but at the current time – in a desperately weak economy – its effect on households’ incomes is being significantly magnified.”
The Bank of England figures also showed the number of mortgages approved in September fell slightly to 105,993 from 108,031 in August, while the value stayed the same. However, while loans for house purchase fell, the number approved for remortgaging increased slightly.
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