The highest surplus in July in over 18 years; £2bn saved last month. Twice last July’s surplus of £1bn, the result could affect the autumn budget. Reduced borrowing is touted as the main cause by Chancellor Philip Hammond. What does a surplus mean however? And how does it affect household debt in the UK?
Household debt – Does saving benefit Brits?
“Countries are not households”, “the national economy does not work the same way household finances do”. These words from blog “From Tone” simply spells out what our attitude should be towards surpluses. It also works in the opposite scenario of a deficit. A country ideally should be budgeted to either use surpluses to pay debt or to fund. Retaining money like a savings account isn’t a plan for countries to adopt.
Will the £2bn be a benefit to Britons and affect levels of household debt? The easy answer is, ‘it depends’. Governments can choose a course of action they see fit to achieve their goals. Following the financial crisis of 2008, frugality and reducing deficits have been the main aims of government in the UK. Over time, the UK economy has recovered and stands at a tolerable level, although more work is required to initiate a boom period.
What affects households the most is the effects leading to a surplus. To achieve a surplus a government needs to focus on savings and lowering spending. This affects interest rates, tax and investment. This year, local councils have been deemed to be “at breaking point” due to austerity measures taken. This affects spending at local levels and forces councils to do what they can to remain functional. Some councils have been forced to adopt overly aggressive debt collection strategies which saw them attacked by MPs. However, decisions made higher up did have impacts on council decisions about recovering unpaid debt at local levels. It can be a vicious cycle and all in the name of producing a surplus.
Long term agenda
A surplus can be highly beneficial for the upcoming autumn budget. They must however be managed as maintaining a surplus for too long could negatively impact the average household. With household debt at nearly £19bn, it would be wise to invest the surplus in improving quality of life.
It is a fine balance to keep spending and saving at acceptable levels. It is also difficult to predict if measures will guarantee a surplus for future use. For households, our best advice is to save as best you can in times of feast and famine. Having your own surplus will assist you in case your life faces changes. Jobs, personal circumstance, family life and your house can all change faster than we think. With this in mind, unlike the government, we’d advise a rainy day fund.
When it comes to debt collection during periods of low interest and low investment, we understand money can be tight. However, we must be firm but fair with debtors meaning if you owe money, savings are the best way to resolve unpaid debt. Finding other forms of credit can make the matter worse long term, so we highly recommend good financial management.
Creditors beware
Periods of extended savings mean people may have less disposable income. Have due diligence when offering credit to avoid risks. Credit checks and risk calculations are a must when income is tight. Our advice to you is to track government fiscal decisions. Know what they intend to do and how it will affect your debtors. Every big decision made in government will have effects long term, so stay on top of how that affects you.