I begin by paying tribute to Stella Creasy for bringing the debate and for all her work in this area. As the Christmas shopping season gets fully under way, it is right that we debate debt, how consumers require protection in a fully regulated credit market, and the responsibility of Government to ensure that that is the case. The high cost of some credit options, especially buy now, pay later deals, is already causing untold misery for millions of consumers. So far this year, shoppers have racked up more than £4 billion of outstanding debt, averaging £538 for each user. Research shows that 10% of shoppers plan to use buy now, pay later options this Christmas. I am sure that option can be helpful for some people, to spread the cost of significant purchases, but it can also facilitate the building of unsustainable debt.
In order to protect consumers, the sector needs to be properly regulated. An exemption in the law as its stands means that these payment plans are not treated in the same way as traditional credit agreements, so they are not regulated by the Financial Conduct Authority. Therefore, as the Woolard review found earlier this year, many consumers do not see buy now, pay later options as a form of credit, so they do not consider arrangements as carefully as they might otherwise do. It is worth noting that the sector was comparatively small, but the value of transactions nearly quadrupled between January and December last year, to £2.7 billion. It is easy to understand why the Woolard review concluded that there is an urgent need to regulate all these products.
The Government’s consultation into the regulation of the buy now, pay later market will close in January. It must result in robust regulation of the sector, which must be brought into line with the regulation of other areas of the credit market, with interest at least no higher than that for pay-day loans, credit cards or overdrafts. It should also require credit checks similar to those for other credit products. It is appropriate to think about such things as we approach Black Friday and Cyber Monday, which is the commercial answer online to in-store shopping.
Recent research by the consumer organisation Which? is very worrying. It reveals that a strikingly high number of shoppers feel rushed into making Black Friday purchases. Many live to regret it, using credit or borrowing to make purchases that they could otherwise not afford. That must be seen against the background of the way that Black Friday is marketed, using the threat of regret, with banners such as “Hurry!”, “Don’t miss out!” and “Last chance!” plastered around these so-called deals. Shoppers who buy on credit pay extra for their purchases, regardless of how good the deal might look, once the extra cost of credit is factored in, which can build from month to month.
It is also worth noting that the seductive techniques used to encourage shoppers to splurge on Black Friday belie the fact that Black Friday deals are not always the best of the year. In fact, many products can be found cheaper in the months before and after November. According to Which?, that is all hidden behind the marketing used for Black Friday.
As we approach Christmas and talk about debt, there are some who say—and I have heard them—that people should live within their means. It is easy for those who are relatively well off to lecture those who do not have very much about living within their means. It is completely understandable that people, despite being financially pressured, still want to buy presents for their children at Christmas—of course they do. If they do, the Government have a duty to ensure that all consumers are buying in a fully regulated credit market, with all the protection they need, should they find themselves overwhelmed with debt. The Government have a duty to ensure that all aspects of the credit market are fully regulated and fit for purpose.
I need to say at this juncture that many families are not forced into debt because of Christmas shopping, but because their everyday household budgets are being squeezed more tightly every single day. We must not assume that unsustainable debt is down to non-essential purchases. Many households are falling into debt in order to pay for essentials, such as the gas bill or groceries. That applies not just to those who are unemployed but to that shameful phenomenon: the working poor. Those are people who go out to work every day to provide for their families but simply do not earn enough to make ends meet and pay for essentials, having been met with a cut of more than £1,000 a year in universal credit.
We are sitting on a debt time bomb, and it is not due to profligacy; it is because so many people have suffered an income shock through no fault of their own. Sadly, for those people, the idea of levelling up sounds very hollow as they face the destructive misery of debt, which every day threatens to engulf them. The cost of living is rising, and that is throwing many people into hardship, including many people who were always able to manage in the past. The UK household debt crisis is not going away; it is actually getting worse.
The Government must therefore ensure that the buy now, pay later market, which we have heard so much about today, including the difficulties with it, is subject to the robust regulation that consumers have a right to expect. That process must be expedited so that next year, at the next Black Friday, anyone who turns to any kind of credit can do so with much more protection and confidence than they are currently able to. Some people have estimated that the sector may not be properly regulated until as late as 2023. That prospect is deeply concerning, so I hope that the Minister will today commit to expediting regulation as soon as possible and as a matter of priority, so that we can save yet more people from experiencing the severe misery of debt without the protection that they should be entitled to expect.