St Paul's Institute

Taming the shapeshifting monster of debt

by Barbara Ridpath

Posted: 01 May 2019

In mythology and folklore, shapeshifting is the ability of something to transform its physical form or shape. This is usually achieved through the inherent ability of a mythological creature, divine intervention or the use of magic. Given that debt is a human construct, some readers may consider this anthropomorphism of debt inappropriate. It is, however, the best way available to explain how our systems of government and business have transformed and shifted debt burdens to and from groups of people like a giant game of pass the parcel.They have done this without consulting those who end up bearing the burden of the change. This piece considers how consumers and citizens can understand how and why this has occurred and how to influence the future in the interest of the common good.

Debt has historically been used by individuals, businesses and government to bring forward spending before revenues materialise. In the case of governments, this is often either for large infrastructure projects that will be paid for over time by future tax revenues, or more general spending in anticipation of future tax revenues which will extinguish the debt. Businesses also borrow to buy inventory or build factories in anticipation of future revenues that will come from what they buy or build. Individuals, when they can afford to, traditionally borrow for major expenditures like homes and cars, paying off the debt over the lifetime of the assets.

In our current world of 'finance-dominated capitalism' the search for efficiency and cost reduction has become a key component of both business strategy and government budgeting.This pushes each sector to shift costs, responsibilities and the accompanying debt to another sector. In some cases, services previously provided by government become outsourced to businesses who are supposed to be able to supply them more cheaply and efficiently. This happens directly when the UK government outsources prisons, road construction and maintenance, or privatizes previously public utilities such as water, electricity or railways. It can also happen less directly by the encouragement of private health insurance or personal pensions.

Expenditure previously borne by government to fund such activities will now be borne by either private companies or individuals. This is intended to reduce government deficits and thus, borrowing requirements,ultimately lowering government debt.

By focusing on reduced deficits for governments and higher profits for companies, we have neglected to see who bears the burden for this shapeshifting until the effects are well entrenched. As spending moves to companies and individuals, those with sufficient cash may pay the expenditure from current income. Those without may borrow to do so, effectively shifting debt from the public to the private sector, either to businesses or individuals. The introduction of universal credit left those on benefits with a time lag between registration and receipt of funds that obliged many to borrow to meet the time gap, creating chronic indebtedness,insofar as benefits were never sufficient to repay the debt incurred.

Businesses can also shift debt. Most often this happens with suppliers, but it can also occur with customers or employees. Depending upon the terms by which large companies pay their suppliers, small suppliers may effectively fund the large company's inventory. This is often the case between farmers and supermarkets. As suppliers often produce to a retailer's specifications, small suppliers may also have to make investments at their own expense to be able to win contracts from large buyers.

Customers are not obliged to borrow to purchase, but they are often encouraged to, especially where retailers earn money from also lending them the funds to make the purchase. Notable examples are car finance, phone contracts, and purchases of large consumer goods from companies who will also provide the finance, either directly,through a store card, or within the contract cost.

Businesses have also shifted costs and debt to employees, through an end to final salary pension schemes, by making employees claim expenses back from the company, pay for their own work uniforms, and use their own devices at work. At the same time, government needs consumption to keep the economy growing, so it is loath to discourage personal borrowing, even when it puts personal financial positions in peril.

The cumulative effect of these changes can be significant. A combination of government borrowing reductions with concomitant service and benefit reductions, occurring at the same time as businesses reduce benefits, and increased costs borne by staff, squeezes individuals trying to make ends meet.

Business and governments do this because they believe their core accountability is to the financial markets from which they borrow. These markets determine the price and amount of debt they can borrow.This is the wrong way around.Finance and debt need to return to the service of the production and provision of service. To do this, business and government must both recall the purpose for which they exist, that is the service of their customers, citizens and communities.

How can we help them reorder their priorities? First, citizens need to be aware and informed of the effects of spending changes, not just on deficits and debt, but also on service level provision and the impacts on individuals. Similarly, with companies, passing on of costs to employees and suppliers needs to be explained and justified in policies, and ideally compensated.

Citizens need to demand an increased say in what they want government to spend money on, who pays tax and how much, what services are provided directly by government and which are outsourced. Moreover, government tax policy determines how attractive borrowing is for business.Voters can ask government to change that. Government policy can also have a direct impact on workers' rights.

This shapeshifting monster of debt can be tamed, but only when it is looked at holistically, and as part of a larger project to consider how we believe we can best reflect our beliefs and our values in how we treat all of those created in the image of God.

This article has been written for our series on Debt in partnership with Theos think tank. 

About this author

Barbara Ridpath is the former director of St Paul's Institute and a member of the Church of England's Ethical Investment Advisory Group.


The opinions expressed in this article are those of the author, and do not necessarily represent the views of St Paul's Institute or St Paul's Cathedral.