LIVING BEYOND OUR MEANS

Families are spending more than they earn for first time since 1988

HOUSEHOLDS are spending more than they earn for the first time in 30 years.

the average family went £900 in the red last year – plugging the gap by raiding savings or taking on debt.

the national shortfall was a staggering £ 25billion, according to the office for National Statistics. the last time households collectively overspent was in 1988, when the deficit was a modest £300million.

the poorest families fared the worst last year, typically spending around two-and-ahalf times their disposable incomes.

Financial experts said the figures were profoundly worrying and warned that economic growth based on debt was unsustainable. there are growing fears over credit card debt, car finance deals and the return of super-sized mortgages.

Ultra-low interest rates are also seen as a disincentive to save. In a startling warning

yesterday, the ONS said: ‘ To fund the shortfall, households either have to borrow, at which point they could be living beyond their means, or dip into their savings.

‘And our data show they are borrowing more and saving less. Even in the run-up to the financial crisis of 2008 and 2009 – when 100 per cent mortgages were offered to home buyers without a deposit – the country did not reach a point where the average household was a net borrower.’

In a sign that families are losing the habit of putting money aside for a rainy day, the proportion of disposable income that is saved has fallen to just 4.1 per cent. This is the third lowest since records began in 1963 and down from almost 15 per cent in the 1990s.

The ONS said the typical household’s outgoings were £900 higher than their incomings last year.

The incomings relate to salaries, pensions, benefits and other income before tax and other costs. The outgoings include everything from tax, housing costs such as mortgages and rent and bills, to food, clothes, fuel and furniture.

Tom Selby, senior analyst at AJ Bell investments, said: ‘ Economic growth founded on rising debt is clearly not sustainable and if this continues into the long term it would be profoundly worrying.

‘One obvious reason for this is the interest rate environment we have experienced in recent years, encouraging people to borrow more and spend rather than save at the paltry rates offered through bank accounts and cash ISAs.’

Using a separate set of figures, the ONS report showed that the richest 10 per cent of households had a disposable income – after taxes and housing costs are accounted for – of more than £78,000 last year. These families spent less than £39,000 of that sum.

By contrast, the poorest 10 per cent of households had a disposable income of just £5,000 but spent nearly £13,000.

Jane Goodland, of wealth manager Quil- ter, said: ‘This ONS research is yet another stark reminder of just how vulnerable the average UK household has become in terms of their financial wellbeing.

‘Worryingly, we are seeing households saving less and making up for their financial shortfalls through increased borrowing. This is particularly problematic for the most financially vulnerable in society because, while short-term loans are easy to acquire, they’re expensive to pay back and often thrust people into a vicious cycle of borrowing to stay afloat.’ The ONS noted that the Bank of England’s decision to leave interest rates at or below 0.5 per cent for nearly a decade has made ‘financial conditions better for borrowers rather than savers’.

The report said: ‘We’re borrowing more and saving less partly because the interest rate, which dictates returns on money saved and the size of loan repayments, has been at or near a record low for the past decade.’

The City watchdog this week proposed new rules that would force banks and building societies to pay a minimum savings rate to long-standing customers – ending rip-off rates.

Households took out nearly £80billion in loans last year, the most in a decade, according to the ONS. And they deposited just £37billion in bank accounts, the least since 2011.

‘The stock of consumer credit – including credit cards, car finance plans and payday loans – has risen by nearly one third in the last five years,’ the ONS said.

‘Car finance is comfortably the fastest growing type of credit, with nearly 90 per cent of new car purchases now funded this way. Household budgets are under increasing strain.

‘Rising prices have led to increased spending in recent years, while disposable income has risen only modestly.’

Phil Andrew of debt charity Step Change said: ‘The reality is that too many households simply cannot make ends meet, however hard they try.

‘Not having enough money to make ends meet is not the same thing as living beyond your means – which implies you have a choice, when too many people do not.’

‘Paltry rates from the banks’

One of the illusions of the Brexit debate is the idea that staying in the european Union is a way of protecting liberal values.

In the story some Remainers like to tell, the eU is an institution that leaves behind the narrow loyalties and prejudices of nationalism to build a europe-wide form of government. The referendum decision to draw back from this enlightened future could only be a retrograde step.

In voting to leave, a British majority showed that it was stuck in the past.

For Remainers, however, to opt for Brexit was unthinkable, and once they had recovered from the shock of realising that the unthinkable had happened, they determined to do all they could to reverse the decision. Britain represented the illiberal past and the eU a liberal future.

Migrants

This was a far-fetched view at the time of the referendum, and today it is plainly false.

Illiberal forces are advancing across the european continent. Hard-Right governments have strengthened their hold on power in Poland and Hungary, while in Austria and Italy, parties with links to interwar fascism play a pivotal role in ruling coalitions.

The Czech Republic, Slovakia and Slovenia all have powerful far-Right parties in, or close to entering, government.

Sweden, Finland and Denmark are in the same position.

But it is in Germany that the advance of the far-Right is most striking.

Only a few months ago, Remainers were pointing to the solidity of Angela Merkel’s Germany as evidence of the folly of Brexit. Led by this liberal icon, who had welcomed more than a million migrants into the country, the most powerful european state seemed to be the embodiment of a continent no longer shaped by national identities and borders.

That picture of the future has been consigned to the past. Merkel lingers on, but she is a spent force. Under electoral threat from the far-Right Alternative for Germany ( AfD) party, she has decided to institute border controls to prevent any further influx of migrants.

Whether these controls will be effective is unclear, but similar or more severe restrictions are likely to be imposed by other european countries.

Austria, Italy, Hungary and Poland will act to block any inflows of migrants across their borders. The Schengen agreement on freedom of movement, which the european Commission sees as one of the cornerstones of the eU and treats as a red line in Brexit negotiations, is collapsing.

Merkel’s decision to set up border controls is also unlikely to stem the advance of the farRight in Germany.

Before the election last year, the then German vice chancellor and foreign minister Sigmar Gabriel told Der Spiegel that if the AfD entered the Bundestag, nazis would speak in the German parliament for the first time in 70 years. When the AfD did just that, all other German parties vowed to refuse to work with them.

But Merkel has survived only because these parties fear the further advance of the AfD that would almost certainly follow if she stepped down and triggered another election.

It seems to me a safe bet that some years from now Germany will follow Italy and admit the far-Right into government.

Leavers are routinely abused for being unrealistic, and there may be some who have had an over- simple view of Britain’s post-Brexit place in an unstable world. But to my mind, doctrinaire Remainers are far more unrealistic about the stability of the eU.

Soon after the referendum, I argued that Brexit was only the first in a succession of electoral revolts that would break out across the continent. Because parties of the centre identified so closely with the european project, the danger was these revolts would be led by the far-Right. This is happening. Yet few Remainers seem to have noticed.

Some may point to the French president emmanuel Macron as proof of a counter-trend.

But Macron’s fate is uncertain. It should not be forgotten that over a third of those who voted in the final round of the presidential elections last year opted for Marine Le Pen, despite the national Rally party leader reverting to her father’s racist rhetoric.

If Macron’s unpopular economic policies fail to produce positive results for voters soon, it will be the farRight — and maybe the farLeft, which is equally hostile to the eU — that will benefit.

Racism

Remainers respond to the advance of the far-Right by demanding ‘more europe’ — a more determined move to a transnational european state. They reject the suggestion — I would say fact — that it is this very project that has fuelled the advance of anti- liberal forces across the continent.

By attempting to remove immigration from the jurisdiction of national governments, the eU has left many people with the sense they have no control over their lives.

The result of pushing for a transnational government that most europeans do not want has been the rise of the worst kinds of nationalism.

That is why borders are reappearing throughout the EU.

Of course, bien- pensant Remainers will say this is an expression of popular racism. But if you call anyone who demands democratic control of immigration a ‘racist’, do not be surprised if many of them elect real racists. One of Italy’s new leaders is calling for a register of Roma people. europe has heard this sort of thing before.

For its most devoted disciples, there is nothing wrong with the european project. It simply has not yet been applied in a pure manner.

But isn’t this what every blinkered ideologue says about their fantasy of a new world?

There are still people who will tell you that the former Soviet Union began to practise large- scale repression only under Stalin, who distorted Lenin’s original vision.

Virulent

Historical facts show this is not so — mass arrests, systematic killing and the Gulag all began under Lenin.

The indifference to facts of totalitarian ideologies is well known. What is new is a type of liberalism that has also immunised itself against facts.

Liberals like to think they are empiricists — in other words, they learn from experience. But ideological Remainers have learnt nothing from the march of the far-Right across the european continent.

no fact will ever dislodge their conviction that europe represents freedom and progress and Britain the reactionary past.

no doubt Britain has many faults. A virulent new strain of anti-Semitism has emerged in politics — mostly on the farLeft. But we have nothing like the large far-Right movements that exist in nearly every continental european country.

Unlike some european states, Britain remains a liberal democracy.

The upshot of Brexit is unclear. Some believe it may be derailed. I think this is unlikely. But if Brexit is overturned it will be ironic. Under the banner of a march to a more liberal future, Britain will blunder back into a rerun of a dark european past. TOM UTLEY IS AWAY