My Lords, the Government continue to fully back the judgment of the Monetary Policy Committee in delivering macro-economic stability. The MPC is alert to the risks associated with further expansion of household debt, as it made clear in its November inflation report. However, households' total interest payments are now only 7.3 per cent of their disposable income compared with a peak of 15.1 per cent in 1990 and an average of 9.3 per cent over the period 1979–97.
My Lords, I am grateful to the noble Lord for that reply. He will know that total household debt now stands at a near record £810 billion and that it increased by nearly £10 billion in October of this year alone. Is it not clear that there must be a sharp correction, which will be painful for property buyers, for consumers and, indeed, for the economy as a whole? Does the noble Lord have any advice for these borrowers of a seasonal nature?
My Lords, of course there is a risk of a sharp correction. In its November inflation report the Bank of England specifically made that point and we agree with it. Clearly people should not borrow above the level for which their total household income will provide. The crucial factor for most families is how much it costs them to service that debt. Household wealth is more than five times greater than household debt and it would be difficult to persuade people that they should be concerned with the gross amount of debt rather than what it costs them.
My Lords, is the noble Lord aware that the land value of a house in 1952 was approximately 15 per cent and that today it is more than 50 per cent? If we really want to solve the problem of household debt and high levels of borrowing, more land has to be released. That is the basic cause of the problem.
My Lords, whatever the cause may be, whether it is the availability of land or any other cause, the level of housing starts—and I have figures only for the past 10 years—is grossly inadequate to meet not so much the rise in population but the rise in household formation. Clearly if that situation is to be improved, more sites have to be found. That is why the Government are concentrating so heavily on finding more brownfield sites.
My Lords, does the Minister accept that many people with absolute levels of debt will find the Answer complacent in that they are extremely vulnerable to either increases in interest rates or unemployment? Will he go back to his colleagues in the Treasury and suggest that they, the FSA and the Bank of England should consider taking concerted action to warn people about the dangers of accumulating high levels of debt? Many of the ways in which these warnings are currently issued—for example, in the inflation report—simply do not filter down to ordinary people.
My Lords, I do not think that we are complacent and I certainly do not think that the Monetary Policy Committee is complacent. This is clearly one of the important issues that it takes into account. I shall not attempt to guess what conclusion the committee will reach this week. If the noble Lord is concerned with the individual pain of high levels of debt, I hope that he is slightly reassured to think that repossession levels are at an historic low and are falling. They are only a quarter of the level that they were at their peak in 1991.
My Lords, that is not what I said. I said that household wealth was over five times the household debt. That is not the same as income.
Yes, my Lords, of course that is right. The availability of credit to those who are not in circumstances to service it has been a matter of concern over many years. Again, I am not seeking to be complacent; I am merely looking to put both sides of the argument. There is an increase in the use, for example, of credit cards, including by young people. But a very large proportion of that is in the form of debit cards, which are, of course, paid off immediately.
My Lords, I shall certainly not give any advice to the Monetary Policy Committee. We took the decision in May 1997 to devolve these matters to the committee. If I were under any circumstances to give advice, I should not give it on the basis of not being able to make a distinction between wealth and income.
My Lords, is not the high level of spending and borrowing due in part to a general lack of confidence in the future? People are faced with the prospects of germ warfare and alarmist reports in the newspaper. Is it not normal when people are insecure for them often to go shopping or to turn to the bottle?
Retail therapy, my Lords! You could argue the contrary. You could argue that people's willingness to borrow comes from a certain amount of confidence in the future. After all, we have historically high levels of employment and historically low levels of unemployment. We have historically low interest rates and historically low inflation. There is a great deal more security among the population than there was in the 1980s and 1990s.