Introduction
The issue of public debt has adverse effects on the lives of the local people as well as public companies in the United Kingdom. A rise in public debts bears a negative impact on economic health. The rising public debt and inflation have worsened the problem. Debt problems tend to crop up repeatedly but, unfortunately, most people dismiss them by regarding them as issues that can be solved later. When people run short of finances, they tend to borrow money hence creating more problems since they may lack money to pay the debts. Missale (2009: 21) mentions that debt management is a very serious problem since it involves people who already have other problems in their life like frustrations. The discussion below exposes the main issues that cause public debts in the UK and possible measures that the government can use to curb or reduce these factors.
Causes of indebtedness in the UK
Student loans are an evident factor that has increased the rate of public indebtedness in the UK. Students in the UK are able to pay for their living expenses while in university thanks to students’ loans granted to them. According to Cecco, Pecchi, and Piga (2000: 123), the UK government no longer provides funding for the students since funding for higher education has become too expensive for the government to afford. Research has shown that most young people faced with debt problems are those who have freshly completed university education. In addition to student loans, these students still have credit card debts. Surveys show that banks have also worsened the debt problem for a student since students joining university are their target; they encourage them to receive new credit cards and personal loans.
It is evident that advancements in technology have led to great improvements in many sectors of the economy. Despite the rising levels of unemployment, there is an increase in a large skill gap in the UK. The issue of fear and uncertainty has led to an increase in the number of beneficiaries of the mortgage and rent insurances. Individuals who take insurance due to unemployment continue to increase personal debts. When lowly paid full-time workers with dependants are fired, financial problems arise. When the ratio of real incomes equals that of the increasing inflation, most workers are forced to seek alternative means of supplementing their salary. For some people living in the UK, loans and other forms of credit have been used to supplement their income.
Mismanagement of money is another problem that has led to a rise in public indebtedness. The application forms for the tax benefit system are complicated. Many applicants fill out the forms incorrectly and sometimes they receive more payments than they should. Lowly paid applicants may end up spending money they were not supposed to receive; this makes them obtain unforeseen debts (International Monetary Fund, 2005: 111). This problem may be worsened when people are not aware of their degree of indebtedness. It was proved that most people are not even aware of the interest rates of loans. Consumers tend to have a misconception that debt can be well managed when it is at a certain amount. This makes people continue taking debts and mismanaging their money on goods and services. Further, saving has also been a major problem because inflation forces people to spend a big portion of their money on basic needs. Young people do not see the need to save since they consider saving as something that should be done by the old. This makes them obtain loans in old age since they have retired and they have no savings.
Personal crises such as bereavement, separation or divorce, and illnesses or disability also worsen the public level of indebtedness. The above factors can affect one’s financial status negatively. Bereavement for instance makes it hard for people to build a different life hence it may kill the motivation to work and earn money. The period between time to grieve and make arrangements for the funerals requires money hence they may leave one broke. When couples live together, they cost share hence separation or divorce may lead to financial problems. This causes a couple to disagree on who should pay a debt after the separation or divorce.
Measures to reduce public indebtedness
The state of public indebtedness can be improved if the UK government undertakes some serious economic measures. Research has shown that the UK public debt may rise by 100% by the end of 2012 (International Monetary Fund, 2005: 321-322). The government can set aside a fraction of its tax revenues to help students. The students should be advised to seek part-time jobs so that they can pay for the remaining fraction to provide for their livelihood. This will help in reducing the amount of debt students will have obtained by the end of their university education. When such students get jobs, they will not have a hard time repaying the loans since the outstanding debt will be payable. Although the government has already stated that funding these students is too expensive, this is evidently something that it can do to reduce the amount of debt that students find themselves in after completing their education (Neck and Sturm, 2008: 45-67).
Increased interest rates on loans offered by the government will reduce the rate of demand for loans. This will ensure that UK citizens reduce their rate of borrowing money from the government hence reducing expenses. Increased interest rates will propel people to save and in addition, it reduces cases of non-refundable income for people with mortgages. This will generally make people to manage money well and stop living beyond their means. People will fear high accumulation of interest on loans. If the UK government is able to implement this policy, the level of public debts will have reduced drastically in five years time. Another factor that can reduce the rate of public debt is to come up with strict policies that govern the process of obtaining loans. This will ensure that only a small portion of the population qualifies for a loan.
Conclusion
Public debts are evidently a big problem facing the UK presently. This situation has been caused by a combination of many factors that have already been identified and the government is currently applying measures that may help in mitigating this problem. If this problem is not dealt with accordingly, it may cause serious problems since it is estimated that the rate of indebtedness may rise by 100% by 2012. There is however hope since there are some measures that can be applied by the government to curb the problem. One of those solutions is to increase interest rates on loans.
References
Cecco, M., Pecchi, L., and Piga, G. (2000) Managing public debt: index-linked bonds in theory and practice, Cheltenham: E. Elgar.
International Monetary Fund. (2005) United Kingdom: Financial Sector Assessment Program technical notes and detailed standards assessment, Washington D.C: International Monetary Fund.
Missale, A. (2009) Public debt management, Abingdon: Oxford University Press.
Neck, R. and Sturm, J. (2008) Sustainability of public debt, Cambridge: MIT Press.