It is difficult to know what to make of the latest data on household debt (financial liabilities, excluding mortgages) which were published by the ONS this week.
Media reporting of these data took some comfort, e.g. here, in the evidence that at £2,500 Scotland had, in 2008/10, the second lowest median of personal financial debt in the UK. Wales at £2,000 had the lowest, while the South East at £4,200 had the highest. Scotland, Wales, West Midlands and London were below the GB average of £3,200 - see chart below.
Why is it an apparent good thing that Scottish household debt is lower than the GB average and several other regions?
The answer is that high levels of household debt are considered to be a major factor in damaging consumer confidence and lowering household spending after the financial crisis and recession of 2008/09.
There is Bank of England survey evidence that concern about high levels of debt leads households to desire to cut spending. And the recent ONS data show that the percentage of individuals reporting financial debt as a burden has increased between the two waves of the survey i.e. 2006/08 and 2008/10. In 2006/08, 47.5% of individuals living in households in financial debt reported their debt as either a heavy burden or somewhat of a burden, compared with 49.4% of individuals in 2008/10; an increase of 1.9 percentage points.
So, can we conclude that because of the lower level of debt Scottish household spending while continuing to be restrained, should be less restrained than in Britain as a whole and in most other GB regions?
Possibly but not certainly!
Economists who believe the "Financial Instability Hypothesis", which was developed by the American economist Hyman Minsky, emphasise the rate of growth of debt as well as its level. Steve Keen, for example, suggests that
"the ratio of debt to GDP — and the rate of change of that ratio — as the key determinant of the state of the economy .."
Superficially, the argument is that the greater the acceleration the more heavily the brakes are likely to be applied. In the debt context, the faster the growth of debt the more rapidly spending will be cut back once the 'Minsky moment' is reached.
If the growth of debt is important, and we are talking hypotheses here, then what do the data show for Scotland in the recent ONS release? The chart is here
The growth in Scottish non-mortgage median household debt (19%) was faster than the average in Britain (14%) but less than some UK regions.
I'm not sure how significant this statistic is. But my main point is that we should not draw too much comfort from the evidence that the level of Scottish household debt is lower than GB and most other UK regions.