I’ve been trying to follow a nagging thought through to its conclusion. We know to expect that flooding risk will extend to an ever increasing proportion of the UK housing stock. But in the context of financialisation, mortgages underpin bank lending, and by extension the wider financial system. And a majority of households depend on their house as a savings vehicle. So what happens when physical climate impacts destroy the real assets that households and the financial system are relying upon?
This is part 6. The debt economy of the UK.
The UK exemplifies how financialisation can simultaneously promise economic growth while undermining household financial security. This contradiction operates through several clear mechanisms, each reinforcing the others and creating an increasingly unstable system.
At its core, financialization promotes debt as both an engine of growth and a necessity for basic economic participation. The trap operates through several interconnected mechanisms:
- Asset Inflation Without Income Growth:
- While asset prices have risen dramatically, wages have remained largely stagnant. The Bank of England’s post-2008 policy of maintaining exceptionally low interest rates has driven house prices to around 8 times the average salary, compared to 4.5 times in the 1990s. This forces households to take on increasing levels of debt to buy their primary residence.
- Debt linked to wealth generation via the primary residence is the single largest source of legitimacy for finance-driven growth. At the same time, it is the leading cause of the current housing crisis and a major source of inequality (consider that around a third of households own outright, a third have mortgages, a third are renting – ONS data).
- According to a survey by the Money and Pensions Service (MaPs), around 1 in 4 UK adults (11.5 million people) have less than £100 in savings, with one in six people having no savings at all. Many UK household lack even basic financial security, and instead of accumulating savings to purchase assets, they must rely on debt – creating a cycle where more income goes to debt servicing rather than saving, further reducing their ability to be financially resilient.
- Debt as a Necessity:
- Basic participation in the economy increasingly requires significant debt, leaving many households with no alternative but to accept substantial financial obligations. For example, introducing student loans means accessing UK higher education now involves taking on personal debt. Similarly, essential purchases like cars increasingly rely on finance plans rather than outright purchase, with over 90% of new cars in the UK now bought on credit. This reliance on debt is a structural change connected with the withdrawal of public service provision (in these examples: university funding, public transport).
- The Growth Paradox:
- The economy has become dependent on continuous household borrowing to maintain growth. If households reduce their borrowing to improve their financial security, it could trigger an economic downturn. Yet continuing to borrow at current rates is unsustainable for many households.
- Wealth Transfer:
- Monthly debt payments effectively transfer income from working households to financial institutions and wealthy asset holders. Recent data shows UK household debt at £2.3 trillion, with the average household owing around £64,000 including mortgages (The Money Charity). Each monthly payment on these debts represents a transfer of wealth that reduces household financial resilience.
This system creates a particularly pernicious trap: financialization promises growth or is even presented as necessary for growth, yet it systematically undermines both household financial security and overall economic stability.
The consequence is an economy where financial insecurity has become the price of participation. Households must take on debt for education, housing, and increasingly just to maintain living standards, while their debt payments reduce their ability to save or build wealth. This represents a fundamental failure of economic policy: rather than creating sustainable growth based on rising productivity and wages, the UK has built an economy dependent on ever-increasing levels of household debt, where the promise of financialization delivers insecurity rather than prosperity.
What makes this situation particularly troubling is its self-reinforcing nature. As households become more financially precarious, they become more dependent on debt, which in turn increases their precarity. This cycle shows no signs of breaking without significant policy intervention, yet such intervention becomes increasingly difficult as the economy grows more dependent on continued debt expansion.
thejoyofrachel 
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