Hard-pressed families ‘forced to take on more debt’ as cuts bite

The criticism comes after it emerged the Office for Budget Responsibility has predicted total household debt will hit £2,126bn by 2015.

The figure – buried in the financial package presented by Chancellor George Osborne last month – is £303bn higher than the previous forecast. Average debt per household is now expected to reach £77,309 over the next four years rather than £66,291.

Shadow Chancellor Ed Balls said the rise underlined Labour’s concerns about the “squeezed middle” in Britain.

“George Osborne says the only thing that matters is getting Government borrowing down,” he said. “But while he is cutting further and faster than any other major country in the world, borrowing by hard-pressed families is now forecast to rise every year.”

Writing on his blog, the Nobel prize-winning economist Paul Krugman warned: “People have been digging into the details of the Government forecast, and finding that it relies on the assumption that household debt will rise to new heights relative to income.

“Why? Because the only way the economy can avoid taking a hit from Government cuts is if private spending rises to fill the gap – and although you rarely hear the austerians admitting this, the only way that can happen is if people take on more debt.”