Time to pay the piper?

22 September 2021

 It is now 18 months since the UK was first placed in to lockdown, precipitating a wave of actions and reactions that have fundamentally altered the state of the economy.

As we know from Newton's third law of motion, every action has an equal and opposite reaction or, to put it another way, there are always winners and losers. The motor industry is no exception.

The acute shortage of new cars continues to drive the price of second hand vehicles ever upwards and while that’s great news for you and me if we’re looking to sell, it’s not so good for the vehicle credit industry.

Defaults are at an unusually (and dare I say unsustainably) low level as, for the first time in history, cars have become an appreciating asset. Add in to the mix the unprecedented levels of cash being pumped in to the economy through furlough and other employment support mechanisms and we have the perfect recipe for a completely unpredictable economic future.

Now, as the government begins to wind-up its support and reveal its plans to claw back some of this expenditure through tax rises, those of us is the car finance industry are left scratching our heads trying to figure out what exactly is going to happen next.

First of all, I think that anyone who sticks their head above the parapet to make any economic predictions at this stage is either a fool or a genius and I am neither. I am however concerned about the long term affect the current situation will have on the credit industry and particularly those in persistent debt.

While the government’s approach has undoubtedly given many a financial lifejacket to wear in recent times, they will in all likelihood still be adrift in a sea of debt when the air gradually leaks out of the vest. At that point it will be down to credit management providers like Anglia to pick up the pieces.

In many ways, the pandemic has pressed the reset button on the economy - businesses are booming again, new vacancies are being created faster than they can be filled and vast amounts of “accidental savings” are being spent. However, this isn’t the case for the economy as a whole. According to the Institute for Public Policy Research (IPPR) many sectors have changed or shrunk and is warning that more than 2 million face an uncertain financial future as soon as next month (October) over the end of furlough and benefit cuts.

There is growing evidence that it will soon be time to pay the paper and I suspect that those plagued by persistent debt will need the understanding, help and support of the credit industry more than ever before.

Mark Scotney