rose to ask Her Majesty's Government what is their response to rising levels of personal debt and its social consequences.
My Lords, I am grateful for this pause in the consideration of the Hunting Bill which enables us to consider something almost as weighty—personal debt and its social consequences.
The level of personal over-indebtedness in this country is a grave and deteriorating problem. The statistics paint a dreary picture. Not only is the situation severe but it is getting worse at a phenomenal rate as each month total lending to individuals increases by approximately 1 per cent. Comparing total lending in 2002 with the projected figure for 2003, the difference is a staggering £51 billion.
What takes us further into dangerous waters is the fragility of the situation: research shows that it takes only a very small change in an individual's circumstances to turn what was a manageable debt into a major burden. On a national scale, a sharp fall in property prices or a small hike in interest rates will provoke debt to spiral yet further out of control.
I want to speak for a few minutes about what all this means, and why we should be deeply concerned. After all, wide availability of credit has contributed to increasing our living standards, enabling people to buy their own houses, go on holidays and buy cars which they would not be able to afford otherwise. On balance, access to credit is a good thing. But poorly managed credit debts can have tragic consequences on a social level. According to citizen's advice, a quarter of its clients who seek advice on debt issues have already seen their GP to report feelings of stress, anxiety or depression. Debt puts a terrible strain on personal relationships and can lead to the misery of family break-ups. When this is multiplied by the quarter of households in the UK that feel they are in financial difficulty, the magnitude of the situation becomes frightening.
Over the past days and weeks we have seen considerable press coverage on this issue. This will hopefully serve to encourage the Government to sit up and take note and, more importantly, to come up with an effective response. A brief glance through the newspapers over the past few days reveals a plethora of sorry tales—and that is just the tip of the iceberg. Those stories represent millions of households suffering in varying degrees from the consequences of accumulating debt that they have to struggle to repay.
Last Thursday, as I am sure all noble Lords are aware, the chief executive of Barclays, Matt Barrett, admitted to the Treasury Select Committee in another place that he would not accumulate credit on his card as it was "too expensive". That seems to me to be an appalling confession which gets us to the heart of the issue. Mr Barrett, with his £1.7 million salary, finds the Barclaycard rates "too expensive", while his clients, many of whom presumably earn a good deal less, have to fork out these rates. Why is that the case? It is because extremely well informed credit card companies are able to take advantage of naive consumers who do not understand what they are letting themselves in for.
Credit card companies use a range of techniques. These include: indiscriminately mailing promotional materials even to those individuals already up to their neck in debt; enticing their customers to borrow more money with sample cheques through the post; adopting confusing and misleading offers; and making it very difficult to compare rates.
A long-term solution must be to deal with the root cause: financial illiteracy. A well informed borrower who fully understands what is at stake is confidently able to shop for his money, compare rates, and move his business accordingly. Nowadays people know how to shop for fridges, cars, clothes and food, but not yet how to shop for money. They are still grateful to be offered a loan. There are good deals out there for those who search for them. This is when the market functions properly.
What is too common, however, is uninformed borrowing. According to a KPMG survey, 36 per cent of people have no idea or only a "rough idea" how much interest they are paying on their debts. Over 3 million households in this country are reliant on the services of moneylenders, who regularly charge in excess of 150 per cent APR for cash loans. I am worried that the Government are not doing enough to tackle financial illiteracy. At the beginning of 2003 the Financial Services Authority announced that consumer education would be a priority for the year, but despite this it devoted only a fraction of the overall FSA budget to it.
We have seen a number of initiatives being launched and these are welcome, but what we need is an integrated, sustained campaign over a long period. The FSA will publish a White Paper outlining a national strategy for financial literacy, and I am hopeful that it will offer just that. However, I am fearful that we may have to wait a long time to see any action.
A sustainable strategy for tackling financial illiteracy must involve the co-operation and involvement of the financial services industry, as it is in its interests to have well informed clients with whom it can cultivate long-term relationships. The rogue traders are damaging everyone in the long term. A precedent for good procedure has been set by NatWest, which funds a financial literacy centre at the University of Warwick, and is a business benefiting from the good PR that it has generated.
So what should be done right now? Measures must be taken to promote responsible lending. I understand that the Government will publish a White Paper on reform of the outdated Consumer Credit Act. That is well overdue. When the Act came into force nearly 30 years ago there was only one type of credit card available; now there are 1,300. It seems extraordinary that the legislation has not been updated, given the rapid rate of change in the industry.
A number of issues urgently need addressing. Existing legislation is unable to deal with hard-sell techniques, extortionate interest or the unfair treatment of people in debt. Moreover, industry practices exist that are anti-competitive, such as the early settlement regulations designed to discourage debtors from settling early.
We need informed, responsible borrowing and clearly described responsible lending. I look to the publication of the White Paper, which I hope will make significant and speedy headway in tackling the problems. But I am not over-confident. This is the Government who have allowed the situation to get progressively out of hand. I suppose that that is hardly surprising, as that is typical of their overall attitude to money matters. Leading the way is the Chancellor of the Exchequer himself, setting the worst example possible, with the Treasury on course to overspend by a phenomenal £10 billion. Whatever happened to Gordon Brown's famous prudence and, sadly, what kind of example is that to the borrowers of this country?
My Lords, not for the first time, the noble Baroness, Lady Wilcox, has done the House a service in promoting debate on consumer matters. As a former chair of the National Consumer Council and current president of the Trading Standards Institute, she has great knowledge and authority with which to speak on such matters, especially on the hardships and problems incurred by those overburdened with debt.
The pushing of debt to those already over-committed; the monstrously extortionate rates of interest sometimes charged; the vicious power held by illegal, unlicensed, back-street moneylenders who do not depend on lawful recovery methods—all those raise problems of law enforcement and questions about the Consumer Credit Act 1974, to which the noble Baroness referred. It needs the attention that the Government are now giving it, with a view to reform. I suppose that the chief executive of Barclays was inevitably to be mentioned in the debate. He may have given the forthcoming White Paper a very useful boost.
Many people get into debt-difficulty simply because of natural, normal risks of everyday life, such as illness, bereavement and redundancy. The key requirement is timely and realistic advice for those in debt. I declare an interest as honorary president of the Money Advice Trust, which, with the aid of numerous banks, retail firms and others, provides the back-up necessary to enable skilled debt advice to be provided to anyone who needs it. The trust's best-known role is financing National Debtline, a telephone advice service, which I remember being started many years ago by the Birmingham Settlement and which is now run on a national scale.
In the recent pilot phase of the national scheme, that telephone service helped 26,000 clients over 12 months. However, it answered only 40 per cent of the calls received, through lack of resources. The Money Advice Trust plans a recruitment and adviser-training programme that will enable 150,000 clients a year to be helped. Helped to do what? To maximise their possible income, and to reorganise their debts to work out, with the creditors, a practical programme for repayment and getting on course again.
The trust works with many associated bodies, one of which—the most important nationwide body, the citizens advice bureaux—was mentioned by the noble Baroness. Its advisers have been dealing with a huge increase—of 47 per cent—in the number of consumer debt problems over the past five years.
Central Government, represented tonight by the Minister, and local authorities are playing a vital part in funding the National Debtline, grants to citizens advice bureaux, and local face-to-face advice. This evening, I hope that I can rely on the Minister to give us what is so strongly needed: a strong commitment—a medium-term commitment—to government funding which will carry with it great encouragement to the private sector to support what is needed.
My Lords, I am grateful for this opportunity. My grandmother was a Lancashire mill worker and a lapsed Baptist. She had three categories of persons who were anathematised. In ascending order of anathematisation—if there is such a word—they were the divorced, Catholics and, finally and worst of all, those who were on something called the never-never. The never-never was a term that described those who bought now and paid later. They were anathematised because she said that people on the never-never had lost their pride. She had pride. All her children took the 11-plus examination and passed, but none of them went to the grammar school because they could not afford the uniform.
As a student whose parents did not own a home—nor did they have a bank account—I had great difficulty opening a bank account at all. I was not allowed any sort of overdraft, and credit was simply not available. Three of my four children have recently graduated from university. Credit is still poured on them, almost on a daily basis, in spite of the fact that they owe many thousands of pounds. No one other than my wife and myself encourage savings, good budgeting or any sort of financial responsibility, and that will be a problem.
They will cope, but I do not want to spend the couple of minutes that I have talking about my children or those who will cope with credit, whether it is good or bad. I will talk about those who unfortunately cannot cope or get credit from the usual sources, and whose level of debt and total lack of access to reasonably priced loans makes the need urgent for an integrated strategy to tackle debt among our most excluded people.
In Sheffield, we have done three years of research through an organisation called IMPACT—Communities in Partnership for Action. It is a broad-based organisation with 27 communities in urban and suburban areas, mostly of Anglican, Roman Catholic and Methodist churches. Its research has come up with some very interesting facts and figures. One is that more money is leaving our weakest communities in payments to loan sharks than is put in through regeneration activities. If the Government are serious about wanting to create sustainable communities, they will need to fund and encourage the development of area-wide strategies to address debt, particularly in our poorest areas where, for many people, there is no alternative to loan sharks.
As the noble Baroness pointed out, the interest rates charged by such people are quite incredible. A £300 washing machine to you or me will cost £900 to a single parent living on a housing estate who has no access to the usual sorts of credit. It is no good simply throwing the responsibility to do something about that appalling situation at the Government. Responsibility must be shared between national and local government, the faith communities, the voluntary sectors, businesses and statutory bodies, as well as the financial sector, in whose long-term interest it must be to encourage financial responsibility.
In our work we have set up, in co-operation with one of the large high-street banks, a strategy for financial inclusion for our poorer areas. I shall recite our aims very briefly.
The first is the setting up of a community finance initiative—a non-profit-making company. There are several examples in other places which lend money to those who cannot find it elsewhere. More than 90 per cent of the loans are returned. So much for being high-risk businesses justifying excessive interest rates. Such a company will fill the gap which some credit unions are not able to meet because they tend to be small, limited to communities which are poor and made up of people who in the main want to borrow rather than invest. An area-wide credit union makes much more sense because it can become self-supporting.
We need to increase accessibility to credit unions by having collection points in schools. We need to encourage payroll deduction to credit unions from our authorities. We need more and better debt support and money advice. Last, but not least, and perhaps most importantly, we need a financial literacy initiative in our schools. Many young people leave school with no knowledge of how to handle finances. Some families have for generations had no experience of financial services and they do not know what to do with a bank account. It can do more harm than good if they do not know how to use it.
It is a good thing to be a Lancastrian as Bishop of Sheffield in Yorkshire. The city is improving at a rapid rate. We are getting over pit closures and steel redundancies, but this issue is a remnant of despair that must be dealt with in our community.
My Lords, I, too, thank my noble friend for introducing today's subject. It is extremely important. I watched the news on television this morning. It was interspersed with advertisements urging me to borrow, borrow, borrow against no security. How can people resist such offers? Why cannot companies be made to ensure that people have sufficient security should they fall behind in their payments, which otherwise results in disaster?
As the right reverend Prelate asked, do young people receive sufficient education in financial matters? Statistics appear to show that they certainly do not. It is a stated government intention for young people to go to university and they are encouraged to do so, but the debts they incur make their futures extremely perilous.
Parents should be able to advise against spending more than can be afforded, but that is evidently old-fashioned. The idea that you do not buy anything until you have the money in your pocket is very out-of-date. Getting on the property ladder encourages even greater financial risk to young people. I join the noble Lord, Lord Borrie, in asking: do not all these problems require the Government to ensure that reform of the Consumer Credit Act 1974 is brought speedily before Parliament?
My Lords, I thank the noble Baroness, Lady Wilcox, for giving me the opportunity to speak publicly on a matter which has angered me a couple of times in the past year. It is the problem of how someone who is prudent with finances can fall into debt inadvertently and what can be done about it simply.
The problem arises with the debit card. I was always under the misapprehension that one could buy goods with a debit card only if one had funds in the bank—or an authorised overdraft—and that the bank would refuse to honour a transaction if one did not have funds. One could not therefore go into debt. Not so.
I believed that when the card was put into the machine the bank account was checked and any funds there were released to the merchant and all was well. If the transaction is small—say, £20—no check is made at that point because it is cheaper to upload at the end of the day. Let us say that an annual direct debit payment went out on the same day as one spent £20. That spend may well take the account into overdraft at the end of the day.
I believe that the transaction should be treated like a cheque and should be bounced. The bank should say, "Right, that's it because there are no funds". Not so. The bank honours the payment to the merchant and creates an overdraft on the account of the person who is not allowed credit.
The next problem is that the bank immediately issues a letter, which costs £25 or £30, saying, "You've been a very naughty person and exceeded your limit", and it slaps on a £60 referral charge. Suddenly, overnight, some poor person finds himself about £100 in debt. If he is a student on an allowance of about £100, probably all of which is earmarked for living on and buying books, how is he to pay it off?
The bank then applies the opposite of an old adage: only kick a man when he is down and make sure you kick him hard enough to stop him getting up again. The next month, he will receive another £20 letter informing him that he is still overdrawn and another £60 referral charge. The debt has doubled. Oh, and of course, this is at 25 per cent unauthorised overdraft interest rates. The downward spiral is created.
I know two people to whom that happened. One was a Russian girl. I do not know how she managed to pay off the debt, because she had terrible trouble. Every time she paid it off, the bank made sure it sent another £20 letter to take her overdrawn again. That went on for a long time until someone eventually bailed her out.
It also happened to my son. Having been briefed by me, my son telephoned the bank. He gave them an earful, threatened to move his account and pointed out that while they were trying to get students to sign up to their accounts they were about to lose a good customer who had been with them for many years. At that, they took fright, refunded the money and he went into credit. We learnt a good lesson from that.
The simple answer to the problem is to make such practices illegal. When debit cards are involved, the banks must take the risks. If they do not check the account immediately a transaction is made, they must take the risk. They may wish to treat it like a bounced cheque relating to that amount, but the charge should be limited to a maximum of the £1 or £2 it costs them to generate an automatic computer letter. That is automatically posted, without a check taking place, to the account holder and it certainly would not cost £25 or £30. If it did cost that, I should be delighted to lend them my consultancy services to try to solve some of their internal problems.
I do not see why the procedure should not be limited so that transactions can be kept within bounds and people do not fall ever further into debt. That can happen and something should be done about it.
My last point is that the problem may worsen. One matter that has been raised in relation to electronic money is the Common Electronic Purse Specifications—CEPS—system. I now learn that that is unlikely to be implemented. It was a European standard which it was hoped would get off the ground, but there is no particular commercial reason to launch it. As local authorities are trying to find ever cheaper ways of making small payments, they may be looking at EMV standards for doing so. Again, that would involve transactions being taken off line and not knowing exactly whether a person had credit at the centre to cover those transactions. Therefore, that could become a bigger problem in the future, and I simply flag it up as a warning.
My Lords, I declare an interest as the author of a book on this subject and also as a long-standing member of the Jubilee 2000 Coalition and the Debt on our Doorstep campaigns on this subject. I, too, am grateful to the noble Baroness, Lady Wilcox, for ensuring that this debate took place. I am grateful for all that she said and the facts that she put before the House with the possible exception that, in all honesty, this problem has escalated over the past several decades under both parties in government. Therefore, I do not believe that responsibility for it can be laid entirely at the door of the present Government. That does not mean that we can all wash our hands of it as though it were the tide coming in.
I am very grateful to all those who put the facts before us. I also believe that we should pay a very warm tribute to the kind of initiatives that the noble Lord, Lord Borrie, spoke about and those which the right reverend Prelate, my colleague the Bishop of Sheffield, also mentioned.
We have reached the situation where a major social problem requires serious attention. However, I wish to raise two matters in an attempt—I hope that it will be an acceptable attempt—to widen the parameters of this debate. I do not believe that we can automatically assume that the grandmother of the right reverend Prelate was wrong and that we have made great progress in every respect on this matter. The fact is that our society's profligacy and readiness to accept indebtedness would have horrified our grandparents. But it would have horrified not only our grandparents; in their originating documents, the major religious traditions within which we live are all very serious about the issue of usury.
It cannot be right that we attend only to the problems of the poor and those who are not coping when, as the right reverend Prelate said, the real issue may concern the people who are coping. We now live in a society in which not paying for something when you acquire it is a virtue. That is a serious matter. We also live in a society in which borrowing and indebtedness are now compulsory, and we must not underestimate the way in which that educates both those who enter upon those debts and those who watch them that that is an appropriate way to behave. Those of us who consider that we do cope with this matter need to take responsibility for its effect on those who are then led into situations with which they cannot cope.
Mortgage and personal debt have escalated over the past three or four decades by several hundred per cent, and that is a very serious matter. Therefore, I urge those who are coping to take serious responsibility for this situation. I also urge the Government to attend to the volume of indebtedness as a whole and to question whether it is sustainable in our society.
However, my main point is that the religious traditions of Christianity, Judaism and Islam are clear that the people who need to be regulated and controlled are not the debtors but the creditors. They are in the greatest danger of behaving in oppressive and unacceptable ways. Quite apart from the initiative that the noble Earl, Lord Erroll, proposed in relation to the banks, I suggest that it is inappropriate for people to be able to recover debts through the court system when they charge oppressive rates of interest.
I commend to the Minister the possibility of including in the White Paper the provision that those who charge over an agreed rate of interest, which obviously would need to be discussed, should not be able to recover the debt through the courts. I propose that, first, because not only would it obviate the use of the criminal law, except in cases where people resorted to criminal activity, threatening behaviour and violence in order to recover debts, but it would prevent the use of the criminal law to set interest rates, which, frankly, I believe is likely to be considered impossible. Secondly, as a matter of principle, I find it objectionable that my, and your Lordships', taxes should be used to fund institutions—namely, our courts—for the purpose of enabling people to exact disproportionate rates of interest from poor, vulnerable and defenceless people.
Therefore, I suggest that we need to attend not only to the needs of the poorest, although that is extremely important, but to the escalating acceptance of indebtedness as a way of life. That includes the huge volume of advertising literature and television advertisements on the matter that come our way. We also need to attend to the way that the institutions in our society do not protect the poor but, instead, protect people who engage in an activity which socially is utterly undesirable.
We need to address those kinds of matters. They concern some of the issues brought before us by those who have drawn attention to the poor and the vulnerable. We also need to address our social consciousness. We have come so far from the world of the right reverend Prelate's grandmother, and indeed of my grandparents, that we are in considerable social danger. I refer not only to the social danger of the poor, but to the social danger of us all.
My Lords, I thank the noble Baroness, Lady Wilcox, for initiating this debate on an extremely important issue. She gave a number of examples of the scale of the problem of personal debt. I want to add one other. Figures announced by the Building Societies Association yesterday show that advances during the past year have doubled over the previous year. That is another example of what is a truly remarkable rise in personal debt.
At the moment it would be slightly premature to claim that we face an overall crisis of indebtedness, but we have undoubtedly reached a situation in which many people are becoming extremely vulnerable to even a small adverse change in their personal financial circumstances—and this is a time when the Governor of the Bank of England has made it abundantly clear that the next change in interest rates will almost certainly be up rather than down.
The question that we are debating is the extent to which individuals should be protected by policy from over-borrowing. I would certainly not wish to return to the rigidities that applied to borrowing for a mortgage, for example, when I first took one out some 25 years ago. I certainly agree with the noble Baroness, Lady Wilcox, that access to credit is, in principle, a good thing. Equally, I believe that the balance has tipped too far the other way and it is simply too easy for people to ratchet up unsustainable levels of debt, often as a result of highly aggressive and misleading marketing.
What should be done and who should do it? The right reverend Prelate the Bishop of Sheffield gave a long list of those who have a responsibility for dealing with the issue. I want to deal with some of the bigger players. Obviously, the banks and the financial services providers have a major responsibility. The Bank of England has a responsibility for the overall financial stability of the economy. The FSA has a major responsibility, not least given that one of its major remits is to protect the consumer as far as financial services products are concerned. The Government have a major responsibility, both directly via their responsibilities at the Treasury and the DTI, and indirectly in giving a lead to the FSA and the Bank of England.
On what should be done, I want to make a number of proposals that draw on work carried out by my colleague in another place, Vince Cable, some of which has already been referred to by other speakers. First, there is clearly a major problem with exploitative loan sharks. We need tougher legislation to tighten up the issuing and monitoring of credit licences along with harsher penalties for those guilty of bad practice. Secondly, we should outlaw completely any early settlement penalty to encourage the clearance of debt ahead of schedule. It is bizarre that in many cases it is virtually impossible to clear debts sensibly and quickly.
All credit products should be brought within the regulatory control of the Financial Services Authority. Last year when dealing with problems with the split capital investment trust sector, I found that there were major problems concerning the boundaries of what the FSA did and did not cover. That meant huge problems in seeking redress for individuals who had been mis-sold products. At the moment one of the biggest lacunae is equity reversion schemes; the FSA is planning to bring them under its control, but it is taking far too long about it. I believe that the Government should publish strict measures and proposals for responsible lending and that lenders should be required to follow them. Interest rates on store cards should be policed far more vigorously by the competition and trading authorities.
I have two proposals on the issue of the tidal wave of unsolicited mail that we currently receive. First, each mailshot should contain a credit health warning that should explain to potential purchasers the impact of the commitment if interest rates change, particularly if they rise. Secondly, there should be a ban on the practice of sending unsolicited application forms for credit cards, loans and other credit products.
On the broader issue of financial literacy, which is a huge problem, I strongly support the FSA in attempting to get to grips with the issue, but more resources are needed. I hope very much that the tentative plans for a levy on the financial services industry will be followed through, that such a levy will be raised and that we shall have adequate resources generally, and for schools, to explain to people the nature of products that they may buy.
The level of personal debt requires a co-ordinated response by government, with active Bank of England and FSA support. To date, such a response has been wholly lacking. We look for a reassurance from the Minister this evening that the forthcoming White Paper on consumer credit really will get to grips with the issues, and, more generally, that the Government will give a clear lead to all the financial institutions to help to bring personal debt back to a more sustainable level.
My Lords, there could not be a more timely debate. My noble friend was too modest to say, but her credentials for bringing forward this debate are impeccable. She is a former chairman of the National Consumer Council and well aware of the issues that she described so tellingly in her opening speech. In fact, she gave such a clear exposition of the problem, with facts and figures and what she called the "sorry tales" of distress and fear and anxiety, especially among the poorest, as the right reverend Prelate said, that I shall not repeat them.
My noble friend and other noble Lords have focused on the question of financial education. We wondered what the Government's response would be to this problem, so we asked the Chancellor of the Exchequer: what steps are the Government taking to educate the population on financial products? The reply was crisp. It stated:
"Consumer education in relation to financial services is a matter for the Financial Services Authority".
Mr Boateng, who perhaps had just read the Government's latest handout, How to Wash your Hands, elaborated. He said,
"operational decisions reside with the relevant institutions and individuals".—[Official Report, Commons, 30/6/03; col. 52W.]
One government Minister went a great deal further in explaining the Government's view on the issue. Her viewpoint goes well beyond complacency or caveat emptor. For her the growth of consumer debt is a source of pride, a mark of a strong economy. Ruth Kelly told another place:
"Growth in household debt reflects strong fundamentals with a robust labour market, low interest rates and strong gains in housing wealth".—[Official Report, Commons, 10/3/03; col. 21W.]
She gets much closer to the reality of why the Government are apparently so relaxed about the issue. Without the build up of debt that we have seen, the reality is that Britain's economy would be in exactly the same position as Germany—that is, near recession. The reason is that there has been, as has been described today, an enormous build up of borrowing against property to fund pensions or purchases.
Today, 50 per cent of all mortgage lending is by homeowners borrowing against the value of their existing homes. They are called mortgage equity withdrawals, home equity release plans or other exotic names, but their real name is a second mortgage. So, 50 per cent of all mortgage lending is on second mortgages. That 50 per cent of all mortgages incredibly accounts for 50 per cent of the rise in consumer spending, which means that—although the Minister will shortly deny it—the Government have a vested interest in the continuation of the present build up of debt.
So, if the Government have no interest in addressing the problem, who is going to deal with it and resolve the many anxieties that my noble friend and other noble Lords have described?
The Financial Services Authority has a statutory duty given to it by Parliament to promote public understanding of the financial system. The interesting thing about that duty is that it is not subsidiary to its other duties. Its other duties include market confidence, the protection of consumers and the reduction of financial crime. But the duty to promote public awareness of financial products and to promote education about the system is equal in weight to its other duties: it is not subsidiary.
Sir Howard Davies has stressed the need to improve the financial literacy of our children in what he says is a big way. However, as many noble Lords said, the FSA's budget for teaching personal finance in schools is only £300,000, with only a further £2.7 million for adult learning. How can the FSA possibly fulfil its duty with such money?
What about the financial services industry? The noble Lord, Lord Newby, was pleased that it was recognising that the quid pro quo for a lighter regulatory touch was for it to fund that effort, and that financial literacy is the key to long-term trust in its practitioners. It has taken many good steps. There is the innovation of an honesty box to appear in marketing literature on credit cards, setting out more clearly the actual rates being charged—perhaps at some stage containing a common definition of APR and a common method of calculating interest. That is all most welcome. Banks such as the National Westminster have done great work in touring schools and providing basic knowledge of money management.
However, after spending some time researching this speech, I must agree with the chief executive of the National Association of Citizens Advice Bureaux, David Harker, who said:
"Despite a multitude of governmental and other initiatives to tackle debt problems, these are piecemeal, poorly co-ordinated and there is a real danger that they will not be effective".
I hope that I am not intruding on the Minister's time; I shall try to be brief.
I do not blame the Government for that. When I look back on the work that we did in Parliament on the Act, I do not recall that we ever had a debate on the educational aspects of the FSA's work. We concentrated much more on the regulation of creditors, as the right reverend Prelate said. Perhaps we missed a point to which we should return.
Let me end by saying this to the Minister: the Labour Party's manifesto in 2001 said:
"Poor education is a cruel injustice",
"Our approach will be to intervene where there are problems".
There are now problems in this area, as the debate clearly shows.
I recommend to the Minister that he reads what is perhaps the most iconic Education Act that we have ever had in this country: the Butler Education Act 1944, which established the school system in our country. Something of that level is required to deal with the problems described by all noble Lords who have spoken.
Anyone who smokes a cigarette, drinks too much or gets overweight is aware of the risks that they are taking with their health. What this timely debate shows—as my noble friend Lady Wilcox said—is that we now need the same level of awareness of risks to financial health.
My Lords, I am grateful to the noble Baroness, Lady Wilcox, for raising this important topic, which is an issue of major concern to the Government. Total outstanding borrowing, including consumer credit and mortgages, stands at £888 billion, which is made up of unsecured consumer credit of £166 billion and secured mortgage debt of £722 billion.
Economic stability is delivering rising prosperity and record employment, underpinning robust growth in consumer spending. Our stable macro-economic framework has delivered sustainable economic growth, with the growth in borrowing reflecting the strong fundamentals of the UK economy. Unemployment is at its lowest since the 1970s and interest rates are at their lowest level since 1955. Moreover, the UK is the most developed, most competitive and largest credit market in Europe, accounting for about one third of all EU transactions. All that means that consumers of today are able to service higher levels of debt than ever before.
Although most consumers manage their credit successfully, a quarter of households have experienced financial difficulty. Not all financial difficulties become serious, but a significant minority—about 7 per cent of that group—can be classed as being over-indebted. The majority of financial difficulties can be attributed to unexpected changes in circumstances, such as redundancy, job loss, long-term illness, divorce, bereavement or having a child.
I very much welcome the support of the right reverend Prelate the Bishop of Worcester that this is a long-term issue. I believe that that is right. It should not be considered that this situation is fuelled by government improvidence. I believe the problem is that after such a lengthy period of sustained growth people may be forgetting the lessons of what happens when there is a recession and therefore a down-turn in the economy with all the problems that brings. There is a danger that the folk memory does not remember what has happened in previous situations and that, while the level of debt can be coped with at this time, there can be problems if there is a serious down-turn in the economy.
I understand how provoking it must be to the noble Lord, Lord Saatchi, that we have economic success, but the fact is that the causality works the other way round. The economic success is to some extent fuelling the issue of consumer debt. As I have said, this is an issue which the Government take very seriously. We are working to address the problem of personal debt. We will publish a consumer credit White Paper later in this calendar year. It will lay out policy on tackling over-indebtedness and on updating legislation to ensure that it is relevant to today's market, providing effective protection for all consumers.
In answer to a point raised by the noble Baroness, Lady Wilcox, the noble Lord, Lord Saatchi, and the right reverend Prelate the Bishop of Sheffield, about financial literacy, we are taking steps to empower consumers by improving their financial literacy. The Department for Education and Skills funds Skills for Life, the Government's strategy to improve adult literacy in England. Similar programmes are run in the devolved regions. The FSA will shortly publish principles for a national strategy for financial capability and this strategy will present a co-ordinated approach to the provision of education, information and generic advice on financial services.
The right reverend Prelate the Bishop of Sheffield raised a very important point, which is the question of access to credit in poorer communities. The Government will continue to look at measures to address the need of low income groups for affordable credit. That will include improving the Social Fund administration, guidance and training to enhance the fund's ability to help those on low incomes to manage their finances and also working with credit unions to identify options for future reform.
The noble Lord, Lord Borrie, raised the question of debt advice, which is clearly another extremely important aspect of this problem. There are also government initiatives to help consumers once they have problems. There are government funds, free debt advice providers, including £17.l million to Citizens Advice and £2.8 million to Citizens Advice Scotland per annum. There is a National Debtline which gives all consumers free, easy access to debt advice by telephone and access to debt repayment plans.
I say to the noble Lord, Lord Borrie, that we shall be addressing the issue of future funding of telephone debt advice in the White Paper. The Legal Services Commission is running pilot schemes for people qualifying for legal help who find themselves in need of free debt advice. The findings from these pilot schemes and from the operations of the National Debtline are informing considerations of the Government's future role in the provision of such services.
This point was not raised in the debate, but the Government also recognise that over-indebtedness can be a disincentive to entering employment. From April 2004 a new £3 million fund will allow Jobcentre Plus managers to improve access to debt advice in areas where provision is limited, enabling lone parents, partners of the unemployed and other non-jobseeker's allowance benefit customers to get help before they take up work. The Scottish Executive has invested £3 million a year for three years to supply additional frontline specialist money advisers in Scotland.
The right reverend Prelate the Bishop of Worcester raised the question of enforcement. The Government are also looking at measures aimed at creating the right balance between better enforcement methods and safeguarding debtors. The Department for Constitutional Affairs' White Paper Effective Enforcement includes proposals allowing court users to get what is due to them while protecting debtors, who generally cannot pay, from oppressive pursuit of their debts. The review by the Department for Constitutional Affairs and the Insolvency Service of individual insolvency procedures looks at measures to rehabilitate debtors and provide protection from enforcement action while they make reasonable payments towards their debts.
We recognise that a minority of borrowers suffer from the impact of credit at what appear to be extortionate interest rates. We are not persuaded, however, of the case for setting interest rate ceilings, which could have adverse consequences for some of the most vulnerable and could be subject to manipulation by unscrupulous lenders. But we will make proposals to deal with extortionate credit in our White Paper.
The consumer credit White Paper will contain further measures to promote responsible lending. The Office of Fair Trading has published guidance on debt collection and debt management practices that are regarded as unfair and would call into question fitness to hold a consumer credit licence. The Department for Constitutional Affairs is also considering guidance that, it is hoped, will enable most debt cases to be resolved without recourse to the courts.
The noble Baroness, Lady Wilcox, asked whether we were moving quickly enough on the consumer credit White Paper. As I said, we will publish the White Paper later this year. It will lay out government policy on tackling over-indebtedness and update the consumer credit legislation to ensure that it is relevant for today's markets, providing effective protection for all consumers.
Key aspects of our review of the Consumer Credit Act have addressed keeping loan sharks out, tackling unfair lending practices and the quality and quantity of information available to consumers looking for credit. The Government recognise the importance of transparency in the consumer credit sector and support only measures that give consumers the information that they need to make informed choices.
The noble Earl, Lord Erroll, raised an extremely important point and a case that seemed grossly unfair at first sight. Lenders should be able to recover legitimate costs when customers go into default on their accounts. But we recognise that, in some cases, charges and interest on charges can be excessive and fuel increasing over-indebtedness. We will make proposals to address that in the forthcoming White Paper.
The noble Lord, Lord Newby, raised the question of mortgages. In most cases, mortgages are subject to self-regulation under the Mortgage Code Compliance Board. First charge mortgages will be regulated by the FSA, from October 2004, and second charge mortgages will be regulated under the Consumer Credit Act.
The burden of personal debt cannot be underestimated. It is a serious and important issue. Today I described briefly the Government's approach. Further detail will be set out in the consumer credit White Paper before the end of the calendar year. The Government remain very concerned about the social problems caused by over-indebtedness and are particularly aware of measures needed to aid the more vulnerable members of society. We will continue to work on all measures aimed at ensuring prosperity for all.