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Personal Debt

Volume 455: debated on Thursday 25 January 2007

1. What assessment he has made of the potential impact of levels of personal debt on the macro-economy. (111020)

With debt repayments as a proportion of income at 8.9 per cent., in contrast to 15 per cent. at the peak in 1990, the International Monetary Fund and the Bank of England have both said that the impact on macro-economic policy is small. However, to protect the most vulnerable citizens subject to illegal money lenders, I can announce that, as part of our financial advice and inclusion programme, we will extend to every region of the country projects to improve advice, and to expose and secure higher prosecutions of people who are illegally charging exorbitant rates of interest.

I thank the Chancellor for his answer, but I find it hard to believe that this issue does not have an impact on the macro-economy. According to Credit Action, total personal debt in 2006 was a staggering £1.25 trillion—a figure that has doubled in the last 10 years. Why has the Chancellor failed over the last 10 years to address this very real personal and economic problem? Also, can he tell us why it has taken so—

The Bank of England survey on household finances says that debt problems

“are unlikely to have large implications for monetary policy because any effect they might have had on aggregate consumer spending is likely to have been relatively small”.

As for the issue of debt, there are 1.8 million more home owners in this country with mortgages, but I see that as one of the Government’s achievements, not something that we should be criticised for.

Is it not time that some balance was restored on this issue? Are not total household assets in this country worth £7 trillion, and have not real incomes increased by 65 per cent. since 1997, allowing for personal debt? The big issue is about those who are excluded from the financial community. I know that the Government are hoping to tackle the problem in their 10-year programme for financial inclusion, but can the Chancellor provide some comfort this morning that the part of the community that is excluded financially—and also socially—will be incorporated in the coming years?

I know that my right hon. Friend has taken a big interest in these matters. We must do more to help people who are either subject to illegal money lending or lack the advice and expertise that they need to help them make their personal decisions. That is where the resources are going. We are providing more resources for help with financial inclusion, more help with money advice and more support to organisations that provide such advice. The crackdown on illegal money lenders, which started in two areas of the country and was extended to another three, making five, will now be extended to every region. With the local authority working with the police for higher prosecutions, we can send out a signal that we are not going to tolerate illegal money lenders charging exorbitant rates of interest, often running into hundreds of per cent. We will continue that crackdown, but I have to say that the economy’s success over the last 10 years is such that people’s real living standards have risen, with wages going up by 48 per cent. over the last 10 years and consumer price index inflation by only 18 per cent.

Measures to tackle predatory loan sharks are obviously welcome across the political spectrum, but will the Chancellor tell the House why average levels of household indebtedness are so much higher in Britain than in almost all our European neighbours?

I have just given the House the figures. As a proportion of income, debt in this country is something in the order of 8.9 per cent. In the early 1990s, it was in the order of 15 per cent. Mortgage lending as a proportion of household incomes is around 15 per cent., whereas in the early 1990s it was something in the order of 30 per cent. The situation as a proportion of household incomes is far better now than it was, so the hon. Gentleman should be congratulating us on our economic performance.

Will my right hon. Friend share with the House his views on what would happen if personal financial services products were deregulated, which is an idea going around the City at the moment?

One issue raised by both illegal money lending and certain instances of people having been given bad advice is the need for proper regulation of the financial services industry. I had hoped that there was an all-party consensus that that should happen. Unfortunately, the Conservative report on financial services and economic competitiveness says that we should

“allow people to buy and sell products that are not regulated if they have signed to do so”.

That would be a recipe for more people falling into debt, more people being exploited and more people being subject to unregulated behaviour that would lead them into being far worse off than they are now.

Has the Chancellor had the opportunity to make any assessment of the impact on personal debt of tax credit overpayments? Given that during his time in India, the right hon. Gentleman compared himself not only to Gandhi but to Lady Thatcher and Winston Churchill, could he use those great abilities, before he becomes Prime Minister and moves on from the Treasury, to resolve the outstanding problems in the tax credit system?

The hon. Gentleman will know that as a result of the rises in child benefit and child tax credit, 700,000 children have been taken out of poverty. As a result of the changes that we have made, poverty among children—which trebled under the Conservative Government—has been falling under this Government. The hon. Gentleman should be applauding us for our policy on tax credits, which is taking more and more people out of poverty, instead of criticising us.

Personal debt can be either secured or unsecured. Will my right hon. Friend tell the House whether there are significant differences in the overall growth of the two kinds of debt?

Consumer debt—consumer credit—is rising a lot faster than it was, and I am concerned enough about some of the arrangements that individual consumers and citizens enter into to look at what more we can do in relation to financial advice, to giving people specific help through the different agencies that are available, and to cracking down on illegal moneylenders. It is true that the overall level of personal debt has had a limited effect on the macro-economic management of the economy, but it is also true that when people fall into difficulty, they need more help. I hope that there will be consensus that we should do more to help people in that position.

The Institute for Fiscal Studies has said this week that the rising cost of living and stagnating real incomes are causing personal debt problems for the poorest families. Will the Chancellor confirm that inflation in Britain is now double the average of the developed world, and double the level that he inherited? A simple “yes” will do.

Inflation is 3 per cent. Average inflation under the Conservatives was 6 per cent. Inflation in the United States of America has risen as high as 4.3 per cent., and it has been above 3 per cent. in the euro area. In another G7 country, Canada, it has been above 4 per cent. Our record of keeping inflation low throughout the past 10 years is the reason why we have had lower interest rates than other countries, along with 10 years of unparalleled sustained growth. The hon. Gentleman should be congratulating us on that.

The Chancellor talks about the previous Government, then goes round telling newspaper editors how much he admires Margaret Thatcher—along with Mahatma Gandhi, who presumably taught him all about peaceful non-co-operation with the rest of the British Government. The facts are that inflation is double the level that he inherited, the real cost of living is rising even faster, personal debt is at record levels, unemployment has been rising in Britain but falling in the rest of the world, and real living standards for millions of families are now falling. The Chancellor blames the Prime Minister for everything else that is going wrong under this Government, but who is to blame for this?

We are about to enter the 40th quarter of sustained economic growth under this Government. No other Government in the industrial history of this country have achieved that. If the hon. Gentleman wishes to list facts, that should be the first one. The second is that there are now 2.5 million more people in work. The third, as far as living standards are concerned, is that wages have gone up by 48 per cent. under this Government, and inflation under the consumer price index has gone up by less than 20 per cent. As for the record of the Conservative party, the hon. Gentleman should read out his own speeches to the House, because he told the City, but has not yet told the House:

“We still lag a long way behind the Labour party when it comes to public confidence in our ability to manage the economy.”

That is the truth.