My Lords, the Government recognise that demand for debt advice is currently higher than supply. That is why we are increasing the funding for publicly funded debt advice. Although the level of household debt in relation to income is significantly down since the financial crisis, we realise that some people struggle with debt, which is why we are creating a breathing-space scheme to help people to get out of problem debt.
Recently, there have been many reports of the rise in the number of people seeking debt advice and seeking loans to pay basic household bills. Many of these people are in work. National Debtline, the IPPR, McKinsey, and now the National Audit Office tell us that the cause is exploitative and precarious terms of employment, which enables low-value jobs, instead of encouraging productivity and investment in skills and trades. There was a time when we spoke of work being a way out of poverty, but under this Government it seems that the opposite is true. How will the Government make employment the answer and not the cause of this rise in household debt?
I am sorry but I do not accept that; the evidence does not point to it. Over 3 million more people are in work in this country. We have seen one of the largest increases for the lowest-paid in this country through the introduction of the national living wage. As a result of basic tax thresholds being raised, the typical taxpayer in full-time work is £1,000 better off. That is not to diminish in any sense the fact that there is a serious problem with personal debt in this country. It is about 16.5% less than its pre-crisis levels when inflation is taken into account. That is why we are taking the steps that we are.
We have provided significant additional funding to the credit unions. Wonga, which is in administration at present, is not a matter directly for government. The Financial Conduct Authority has issued advice that those who have loans with Wonga should continue to service those debts to avoid getting into further potential debt in the future.
Certainly these are causes for concern. That is why we had a gambling review and followed the recommendation to introduce a £2 limit on fixed-odds betting terminals. That is why we put a cap on payday loans, abolished surcharges on credit and debit cards, and why we are currently undertaking a review through the FCA into high-cost credit. All those things are necessary for the reasons suggested by my noble friend.
My Lords, I think I heard the Minister say that demand for advice has gone up since the end of the crisis, yet household debt is falling. In light of the comments this morning by the noble Lord, Lord Skidelsky—he said that the next crisis is a case of not “if” but “when”—what are the Government doing to create resilience so that we have provisions in place to ensure that if another crisis comes, household debt will not rise further, and that such advice will be in place ahead of time?
We are taking some steps on that. The Financial Guidance and Claims Act, which my noble friend Lord Young took through this House, introduced the single financial guidance body. We stress that we are increasing the funding that goes into making financial advice available to people to prevent them getting into debt. We have taken action against illegal money lending by imposing a levy on the consumer credit industry; it must fund the illegal lending teams that clamp down on loan sharks. A lot needs to be done, but we need constant vigilance in this area because of the problems that we have seen arise in the past.
They are of course regulated through the Financial Conduct Authority, which is one reason why a review into high-cost credit is currently under way, looking particularly at the rent-to-buy model, which I know is of particular concern to many people. It recognises that that is an important element of it, and we are taking action on that.
My Lords, does the noble Lord agree with me that more could be done to resolve problems between debtors and creditors by staged payments, for example, and not immediately bringing in bailiffs, which creates enormous trauma and more expense?
One provision on precisely that point in the Act that I referred to concerns breathing space. It puts on a statutory footing a structured way in which creditors can be paid the debt but which reflects affordability and the lender’s ability to service that payment. That will come forward for consultation very shortly.