Will Needed Lifestyle Changes Result From UK’s Tough Budget?



In my Summer 2004 Quarterly Letter, The Debt Explosion … Is There Hope,” I wrote:

“The 3 June edition of the Herald newspaper reported that personal debt in the UK is about to reach the unprecedented figure of £1,000 billion (CAD 2,500 billion)—about the size of the UK’s annual Gross Domestic Production (“GDP”). Total personal debt is now about 130% of annual disposable income. Citizens Advice Scotland described this debt level as alarming. Indeed, last February, it said that a record number of Scots were now so seriously in debt they would never be able to repay what they owed.

The Herald report included this profound quote by a major commercial bank’s economist: “The overall appetite for credit shows no sign of waning. If anything, it is picking up sharper than it was at the end of last year.” He warned: “The Bank of England is worried about the appetite for debt.’”

Almost 10 years, governments and individuals went on spending sprees. Government and households’ debt-appetite continued soaring up to the recession in 2008. The Office for National Statistics reported that at the end of March 2010, general government debt was £1000.4 billion, equivalent to 71.3 per cent of GDP. And Finfacts Ireland stated that the UK household debt in 2007 was 176% of disposable income — one of the highest in the world.

The UK government had to act as the UK is in such poor financial state it’s credit rating would be affected–making it more expensive to borrow, and so, increasing its debt. Prime Minister Cameron’s austere measures announced on 19 October is a needed, courageous move. As a former CFO for a cyclical business, I know announced budget cuts are just that … announced cuts. Without clearly defined programs and activities to eliminate and streamline, financial targets won’t be met. One key area which the UK government might not achieve is welfare cuts–political maneuverings likely will prevent significant specific program cuts. Still, the government must find ways to reduce its debt and get on a responsible spending path.

By God’s grace folks in the UK will understand they must reap the effects of prior irresponsible spending. Like us, they are in for a long period of slower growth and lower living standards. Opposition politicians will thrive on this as they will have much to complain about!

The US economy is next in line for a reality check. It’s finances are a mess. Sadly, with elections in 2010 and 2012, in my opinion, that economy will stagnate for a long time as no politician will step forward to do the difficult job that Prime Minister Cameron started — he had the “advantage” of inheriting an appalling state of affairs from the Labour Party.

Here in Canada, we are better off; but what good is it to be the least bad! We need to start needed bold actions to lower expectations and clean up government finances. Will we do this? I don’t think so!

Still, the real issue in UK, USA, and Canada is this: will individuals realize they must live in their incomes and not on credit. Will folks be more patient, lower expectations, and implement needed lifestyle adjustments? If not, in time, another irresponsible spending spree will start.

Copy (c) 2010 Michel A. Bell. For more Christan Financial Advice, visit Managing God’s Money™.

Michel A. Bell

Michel A. Bell is a former senior business executive, author of seven books — including his first children's book published in 2022 — speaker, and adjunct professor of business administration at Briercrest College and Seminary. Michel is a Fellow of the Chartered Certified Accountants (UK), holds a Masters of Science in management degree from Massachusetts Institute of Technology and a Doctor of Business Administration honoris causa from Briercrest College and Seminary. He is founder and president of Managing God's Money™ and Stewarding God's Resources.

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