Interest Rates and Consumer Debt (Hansard, 10 May 2004)

§ The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)
My Lords, despite last week's rise, interest rates remain low by historical standards and households remain confident in the future of their own finances, reflecting the sound fundamentals of low and stable inflation with unemployment at its lowest level since the 1970s. The Government aim to provide a framework of macroeconomic stability and awareness of financial issues within which people can make informed, responsible decisions about how much debt it is prudent to incur.

§ The Earl of Northesk
My Lords, I thank the Minister for that reply. Is it not a cause for concern that there is growing evidence that people, particularly the most disadvantaged, are resorting to debt to fund their day-to-day living expenses?

§ Lord McIntosh of Haringey
No, my Lords, I am not aware that there is such evidence. The Department of Trade and Industry published a White Paper on consumer credit last December, following—but not, of course, because of—debate in this House. There is concern about some aspects of consumer and household debt and there are remedies in the responses being made to the White Paper.

§ Lord Davies of Coity
My Lords, for as long as I can remember, society has always encouraged home ownership. That could not be demonstrated more clearly than in the widespread sale of council houses in the 1980s. What proportion of debt results from home purchase and home improvement, and what proportion occurs as a result of buying consumer goods?

§ Lord McIntosh of Haringey
My Lords, I do not think that it is possible to make that breakdown of consumer debt, although I acknowledge that it is a legitimate question. Since my noble friend draws attention to mortgage debt, he will be aware that the Financial Services Authority is taking over responsibility for regulating mortgage business from 1 October this year. It seeks to control, among other things, the loan to value ratio. It wants to see to it that mortgage providers must take into account before concluding an agreement the purchaser's ability to maintain payments on the loan.

§ Lord Pilkington of Oxenford
My Lords, does the Minister see, as I do on the History Channel, that very attractive advertisements are being broadcast on Sky 10 Digital to encourage people to go into debt? All sorts of attractive options are offered. Are the Government thinking of doing anything about that?

§ Lord McIntosh of Haringey
My Lords, there are a number of problems with personal debt which are identified in the consumer credit White Paper. One of them is advertisement, to which the noble Lord refers; another is the responsibility of trading standards officers in the enforcement of the law against loan sharks. Understandably, trading standards officers concentrate on issues of public safety. As a result of the White Paper, a pilot is setting up specialised teams of trading standards officers with enforcement officers, using the Proceeds of Crime Act to penalise those who are loan-sharking poorer people in particular. I hope that that, among other solutions, will make some difference to the problem that the noble Lord, Lord Pilkington, rightly identifies.

§ The Lord Bishop of Worcester
My Lords, further to the Minister's Answer to the noble Earl, is he aware of the experience of citizens advice bureaux and the huge burden on it in the amount of debt counselling that it must provide? Is there any sense in government that the escalating reliance on debt is a massive turnaround from the wisdom of earlier generations? Notwithstanding the prosperity that seems to support it, does not the Minister sometimes feel that we are getting to a point of corporate and social imprudence that we shall live to regret?

§ Lord McIntosh of Haringey
My Lords, as is appropriate, the right reverend Prelate takes a very long view. Of course, if we go back to a prohibition on usury, we could say that there has been a significant increase in indebtedness. In point of fact, in recent years there has not been an increase in indebtedness. Interest payments as a proportion of disposable income are now at 7.1 per cent, compared with an average in 1979 to 1997 of 9.4 per cent, with a peak of 15 per cent. In the shorter term, which I am obliged to address, it is not as bad as the right reverend Prelate thinks.

§ Lord Newby
My Lords, does the Minister agree with the FSA that the number of families facing financial difficulties has risen by some 15 per cent over the past 12 months to 6.9 million families, a very significant number? Many are poorer families who have found themselves the victims of aggressive marketing and then extortionate loan rates.
The Minister has mentioned the consumer credit White Paper on several occasions. Will he urge his colleagues in the DTI to speed up the review of the consumer credit system? I understand that it could be three or more years before any new measures are introduced to implement changes to deal with these unsatisfactory current practices.

§ Lord McIntosh of Haringey
My Lords, there are different ways of looking at the figures. The Bank of England, for example, thinks that some of the increased borrowing, particularly for mortgages, is from higher-income families rather than lower-income ones. It depends on the kind of borrowing in question.
11 As to the review started by the consumer credit White Paper, we should not assume that much of what is wrong is in the Consumer Credit Act 1974. As I mentioned when I talked about the role of trading standards officers, much of it is in the implementation. I assure the noble Lord that the Department of Trade and Industry is pressing ahead for reform without waiting for further legislation.