Another day older and deeper in debt

Have you borrowed money recently? It is difficult not to, given the unsolicited letters that arrive almost daily from banks and building societies, offering personal loans and credit cards at amazingly low rates of interest (for the first 10 days at least – beware the pages of conditions in tiny print). These offers are subject to a curious form of inflation, so where lenders used to tempt us with gold cards, they now offer platinum. I have a wallet full of them and I can exclusively reveal that, whatever the card issuer claims, they are all made of exactly the same substance: plastic.

This transparent deception is an apt symbol for an industry that has successfully persuaded millions of people to live with terrifying levels of debt. One in four households, according to the Financial Services Authority, has borrowed too much and is struggling to keep up repayments. That is more than six million families, and the FSA warned last week that they are in real danger of defaulting on their repayments if interest rates rise. The warning comes as shares in London have fallen in value for ten consecutive days, confirming the febrile state of the economy.

The easy explanation is that we live in a buy-now, pay-later society where people demand instant gratification and are willing to finance everything from holidays and cars to cosmetic surgery with loans. It is a complete reversal of the thrifty working-class culture my parents grew up in, where the very notion of HP – hire purchase, as it was then called – was regarded with horror. And it is clearly linked to the existence of a financial services industry that spends millions soothing our anxieties about running up large debts; a friend recently had to rescue her son, who had been taken seriously ill on holiday and subsequently lost his job, from a finance company salesman who was trying to persuade him to take out a loan to buy a widescreen TV.

The FSA rightly disapproves of all this, warning that far too many families have "unsustainable" levels of borrowing. Politicians do not like it either, constantly issuing warnings about living above our means without admitting their own complicity in creating a culture where long-term debt has become socially acceptable. Not so long ago governments placed legal limits on the amounts consumers could borrow, but these days they show little appetite for regulating an industry whose eagerness to lend money can only be described as reckless.

Ministers cannot even decide on a consistent message. Margaret Thatcher's ambition to create a property-owning democracy, enthusiastically adopted by the present government, turned many of us into the proud owners of large mortgages rather than bricks and mortar. Mortgages are widely regarded as a benign form of debt but the effects of yet another mis-selling scandal in the Nineties are still being felt; another friend, a single parent who works in the public sector, has just received a letter informing her that her endowment mortgage will leave her owing almost £40,000 at the end of its term. When you are saddled with debts on that scale, through no fault of your own, it is hardly surprising if you end up using your credit card for food and other essentials.

Even more bizarrely, ministers abandon their debt-is-bad message entirely when it comes to funding higher education, unveiling one scheme after another whose only guaranteed outcome is to ensure that millions of young adults will begin their working lives with substantial debts. The FSA pointed out last week that people in the 20 to 30 age group already have fewer assets than their parents at the same age, partly as a result of student loans. At the same time, we are all being told to save more for our retirement, take out private medical insurance, find the money to cover our parents' care in nursing homes and pay fantastic insurance premiums to cover eventualities that used to be the responsibility of the state.

Labour governments have always been notorious for their inability to balance the books and this lot isn't much better, in spite of Gordon Brown's reputation for prudence. The Chancellor has already broken his own spending limits for the year, borrowing £21.4bn instead of the £20.1bn he predicted only two months ago. The figure would be even worse, if he hadn't come up with the clever wheeze of quietly transferring the national debt from the Treasury to our overdrafts and credit cards.