THE EFFECT OF RECESSION
The impact of debt on society, by Iain Duncan Smith
As the IMF predicts a recession in the UK next year and the Chambers of Commerce say that we are in one now, everyone can agree that all our own economic prospects are going to be very tight. Most of the news coverage will inevitably focus on the financial consequences of the recession on industry and banking, here and across the world.
Yet there is a human cost that will have an impact on our lives in numerous ways and yet go unnoticed - the growing pressure on families and the likelihood of larger numbers of families breaking up. This isn't just a tragedy for small numbers of people; it has huge implications for all of us.
Personal debt is more likely to build up during a recession and we should understand the part that it plays in family break-up, which in turn causes increases in drug abuse, failed education and economic dependency. Most figures show that family break-up leads to fewer life choices for children and an increase in future problems for them. A child from a broken home is 75 per cent more likely to fail at school, 70 per cent more likely to be a drug addict and 40 per cent more likely to have serious debt problems.
What emerged from the 2007 report Breakthrough Britain, commissioned for the Conservative Party, is that debt is one of the biggest causes of family breakdown. This was brought into sharp focus when it found that nearly 11 million people suffered relationship problems because of debt concerns.
Furthermore, many of the voluntary groups who work with couples in danger of breaking up say that the families they were helping had not realised their problems began with financial worries, which themselves were often compounded by periodic bouts of unemployment. Only when they looked back over the breakdown of the relationship did it become apparent.
Given that, it should be no surprise to anyone that with personal debt in the UK at unprecedented levels, even before the downturn, the pressure on families is set to increase dramatically with the advent of recession. A simple glance at the figures reveals the extraordinary story of Britain's personal debt mountain. The scale of this personal debt is disproportionately large in Britain compared with other European countries. In 1997 personal debt stood at some £430 billion; last year it had risen to nearly £1,200 billion.
What aggravates matters further is the fall in the woman's income (particularly where a child is involved) by, on average, a third at the time of the break-up; cruelly, this collapse in income then often leads them back into deeper debt.
As the recession hits, therefore, families will be under greater strain than ever. Yet, while debt is a problem for us all, with high interest rates on credit cards and mortgages, for someone on low income and without any assets, debt becomes a living nightmare. Doorstep lenders will typically charge them up to 180 per cent on short-term loans; if they stray into the path of the loan sharks, 500 per cent is common.
Incidentally, this is where debt becomes physically painful, with the loan sharks often exacting retribution on family members when they default. Their debt spiral deepens with consequences for us all. Not only do we pick up the direct costs of family breakdown through the benefits system, but there are links to crime as well.
We already know that the criminal justice system is mostly made up of people with poor literacy and numeracy skills, with serious drugs problems, and who come from broken homes, so the results of accelerated family break-up as a result of the recession will also have an impact on the criminal justice system. As a leaked memo from the Home Office to this newspaper pointed out on September 1, violent crime is likely to rise by just under 20 per cent as a result of the economic downturn.
The rise in knife and gun crimes is often gang related and these gangs have their roots in the broken homes of children who for the most part have grown up in areas of social housing with high youth unemployment. Perhaps the single most defining feature of the gang is the very high proportion of its members who have grown up in fatherless families. For many of them the gang, with its age range from 12 to 25, acts as an alternative family.
It may be brutal, with its perverse code centred on violent crime, but for many it fills a gap in their lives. Small wonder then that in the past five years there has been an 89 per cent increase in under-16s admitted to hospital with serious stab wounds.
It is time that we recognise the damaging effects of debt on family breakdown and its impact on so much of our lives - from the taxes we pay to our fear of crime. As the recession hits, just dealing with the raw financial effects on the economy will not be enough: we should recognise the need to help stabilise families so that the social cost does not make the downturn permanent for a growing number of children.
This article first appeared in The Times, Thursday October 9 2008
