New analysis published today (Thursday) by the TUC finds that the official growth forecasts based on George Osborne's economic plans are dependent on household debt growing much faster than pay.
The TUC analysis uses forecasts by the Office for Budget Responsibility to compare earnings and household borrowing for the period from 2015 to 2019. It finds that while wages are forecast to grow at 16 per cent over the period, total household debt is forecast to grow 2.7 times as fast at 42 per cent.
Even more strikingly, unsecured household debt is forecast to grow 4.5 times as fast as wages – by 70 percent between 2015 and 2019. It will reach an average of around £29,000 of unsecured debt per household by 2019.
If the forecasts are met, total UK household debt in 2019 will be 182 per cent of household income. This is significantly above the previous all-time high of 167 per cent immediately before the 2008 crash.
But if households are unwilling to take on so much extra debt, then economic growth is likely to be lower than forecast.
Forecast for UK wages and household debt from 2015 to 2019
TUC General Secretary Frances O'Grady said:
"The Chancellor seems to be hoping for a do-it-yourself recovery, where families run their own deficits and stoke-up their own debt. An average household debt of £29,000 is an awful lot of payday loans, credit card debts and bank overdrafts.
"This is exactly what happened before the last crash, and why we had to bail out banks full of bad debt. If interest rates rise, then many households will be in immediate difficulty.
"In a healthy economy, workers' wages grow faster than their debts . What we really need is a wages-led recovery, not a debt-fuelled bubble. If this Chancellor continues he will be doing the exact opposite of what we need – his huge cuts to vital services will slow the economy while he encourages families to spend money they don't have instead. It's not so much a long-term plan as a dodgy flat-pack self-assembly recovery."