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2009 Year in Review

2009 began with the worst news possible with the revelation that the UK was officially in recession. Throughout the year forecasts and estimations abounded from various groups that ‘green shoots' and ‘tentative' signs of growth were emerging, and that the UK was nearing an exit from the economic doldrums. Yet these auspicious pronouncements proved false, and as we approach the close of an economically tumultuous year for the government and households, the UK remains officially in recession.

2009 also saw taxpayers' money propping up some banks, most notably Lloyds Banking Group and the RBS group, as the financial services industry sought to rebuild the institutions that had so miserably collapsed in 2008. With rigor mortis setting in on the UK economy in the first half of the year the government attempted to administer the kiss of life to its ailing patient, however a quick peck turned into a Hollywood smacker with the government increasing its programme of quantitative easing, or printing money, to just under £200bn at the year's end.

The polis was aggrieved however, as not only was taxpayer money bailing out the banks and propping up the economy, but it was also funding the cleaning of MP's moats and other wholesome activities as the expenses scandal revealed. Furthermore the announcement late in the year that many banks would be paying out bumper bonuses to staff almost provoked civil unrest until the government intervened with a one-off tax on bonuses in its Pre-Budget Report in November. Bankers became the villain of the piece and street protesters to the Archbishop of Canterbury all displayed displeasure with life in The City during the year, albeit in different ways (we don't think our Patron threw computers through any office windows).

Gordon Brown's Labour administration was criticised heavily due to the financial crisis occurring on their watch. And so the government responded by seeking to clean up their act, their public perception, and the financial services industry, with the production of a series of white papers in July.

The Reforming Financial Markets treatise sought to ensure that excessive risk-taking behaviour and the dependence of the financial services industry on the taxpayer would be curtailed so that the circumstances that precipitated the financial crisis of 2008 would not be repeated. In addition the FSA, the financial services regulator, who many faulted for not pre-empting the crisis, was given increased powers of supervision in the resulting Financial Services Bill announced in November.

The government also noted that attention needed to be given to the improvement of consumer protection and financial capability owing to the large number of citizens falling into financial difficulty during the year, and indeed who continue to do so. A Better Deal for Consumers: Delivering Real Help Now and Change for the Future sought to address these issues.

Yet despite the political wrangling and mud-slinging on view in business and political circles, did consumers fare any better in 2009?

Ultimately no - 2009 was as harsh a year for individuals and households as there has been for a long time. Unemployment continued to rise throughout the year as did levels of insolvency. Credit Action's Debt Statistics for December 2009 reveal how 1000 people seek some form of formal debt rescheduling plan every day as many seek to cope with reduced incomes. However the overall figures for personal debt actually declined from £59,670 (including mortgages) in January 2009 to £58,316 in December 2009, owing to increased prudence by consumers with their money, but also due to increased difficulty in accessing credit from banks. High levels of insolvency have no doubt also affected figures.

For households, particularly middle and low-income ones, 2009 has been extremely difficult with debt levels leaving the low-paid in a precarious financial position. In certain cases households were left in the horrendous position of sacrificing nutritional intake or heating to repay what they owe. Campaigning groups warned of a ‘new poverty crisis' emerging next year with 2.3million children expected to be living in poverty unless substantial assistance is given to households.

Across the spectrum it was tough times throughout the UK in 2009. Those approaching retirement faced the prospect of delaying retirement (where possible) to save more, while many more saw millions wiped off the value of their pension funds. Employers up and down the country moved to terminate defined-benefit pension schemes as they became increasingly unsustainable. In the face of high energy and heating costs, many pensioners also faced the prospect of slipping into fuel poverty as winter approached.

Millions of youth fared little better with employment opportunities, graduate programmes and apprentice opportunities few and far between. Long-maligned in the press, youth began to receive increased sympathy owing to the high levels (1 in 5) of youth NEETS (Not in Education, Employment or Training). This prompted the government to introduce schemes in an effort to get youth into work or training so as to avoid the creation of a ‘lost generation'.

Many of those who sought to escape the withering labour market by pursuing further education in September were not spared a year of financial concern as the Student Loans Company failed to deal with the increased demand in applications for financial assistance. The delays in processing applications left thousands of students starting university without their grants or loans. As the year draws to an end this backlog has not been completely cleared.

In the face of increasing hardship 2009 has been a year to forget for many. Yet are there any positives to take from such challenging circumstances?

One notable trend that emerged from Bank of England monthly statistics in September and following months was a decrease in the net lending to individuals figures. These figures reflect levels of personal debt throughout the UK and the statistics that relate to the borrowing of consumer credit suggest that consumers are becoming more aware of the dangers of over-indebtedness. The figures allude to a trend of consumers beginning to repay what they owe instead of borrowing more - leading many to suggest that 2009 was the birth of a more financially savvy consumer. As an earlier caveat mentioned however, difficulties in accessing credit by individuals also impacted on these figures.

Yet Credit Action would welcome such a shift in trends and as 2010 approaches we will continue to highlight the importance of better money management, from an individual perspective right up to HM Treasury. As the government have noted with their consumer white paper, this year has highlighted a need for increased financial education and better thinking about money in tandem with better regulation from above. So what lessons can we bring with us to 2010?

"Only spend what you have" is a phrase that has been bandied about with increasingly regularity during 2009. However we will all need to borrow money at some stage throughout our lives, sometimes for education, a new car or washing machine or in the case of the government, to support public services. Economic shocks and life-changing events will inevitably occur yet we can be better prepared for such seismic shifts. On a personal level, we should all be aiming save even a little amount every month as that can accrue into a sizeable financial safety net over time. This can be accessed should one find themselves unexpectedly redundant for example. If the past decade has been the ‘Decade of Debt' maybe the next could be the ‘Savings Decade'.

As the financial crisis has clearly illustrated though the same lessons apply to banks who need to build up their capital reserves to mitigate any unexpected shortages in the international capital markets. The government should also apply similar fiscal restraint and build up financial reserves so that when tax revenues decline and economic stagnation occurs they can continue to ensure the provision of adequate safety nets for the general populace, as well as the financial services industry.

And if 2009 and the experience of the recession have shown us anything it's that the level of understanding that people - right through from the ordinary Joe on the streets to the big cheese bankers of the City to Mr Darling in Her Majesty's Treasury - have of how our finances and money operate is frighteningly low. If we as a nation are to really recover from recession in 2010 we will all need to give some priority to do the dull but vital work on getting a firm grasp on money and how we can best manage it. With that in mind here's hoping that in 2010 we all get our finances back on track.

 

 

 

 

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