Warning over ‘dangerous debt’

The levels of debt in Britain were well above “dangerous” levels last year, an expert has said.

In a paper circulated at an economic conference in the US, senior economist at the Bank of International Settlements Stephen Cecchetti said that taking on borrowing – be it in government, business or at the personal level – can be beneficial, but when it reaches a certain amount it becomes an impediment to economic growth.

He said this level is reached when government debt gets to 80-100 per cent of its gross domestic product, when businesses reach 90 per cent and household borrowing rises to 85 per cent.

In Britain last year the respective figures were 89 per cent, 126 per cent and 106 per cent, making the UK one of just three out of the 18 most advanced economies in such a position.

Such a situation may emphasise the need for Britons to instigate debt management measures, with many finding the amount of borrowing they have taken on is no longer beneficial and is simply an unsustainable drain on their standards of living.

For some, measures like individual voluntary arrangements may help remove unpayable debt, through a process involving agreed lower monthly repayments made over a period of five years or less, after which all remaining debt is wiped off.

Evidence exists that Britons are reducing their debt by simply borrowing less, with one example being Finance and Leasing Association figures for June 2011.

These showed a three per cent year-on-year drop in lending by the assocation’s members.

By Joe White