HC Deb 04 March 2004 vol 418 cc1043-5
9. Mr. David Amess (Southend, West) (Con)

What discussions he has had with representatives of the Bank of England regarding the sustainability of current levels of personal debt. [158475]

The Chancellor of the Exchequer(Mr. Gordon Brown)

I last met the Governor of the Bank of England on Tuesday. Interest rates are close to their lowest for 40 years and for the average household the cost of servicing debt is half what it was in the recession of the early '90s. Both the Bank and the Treasury will continue to pursue policies designed to ensure economic stability.

Mr. Amess

The Chancellor is fond of telling the country not to worry about the level of personal debt, but under this rotten and discredited Government it rose to £.10.6 billion in January, despite the fact that personal savings have halved. Will the Chancellor admit to the House that there is a risk that through his policies he is storing up trouble for the future? Does he intend to leave that matter to the Monetary Policy Committee and will it be included in the Government's new inflation target?

Mr. Brown

At every point, the Conservative party tries to predict that the economy is about to go into recession, and the hon. Gentleman, too, is trying to suggest that we have created a problem that will make growth in the economy unsustainable. I repeat that the cost of servicing debt for households is half what it was at the beginning of the 1990s, because we have lower inflation and have managed to keep interest rates low. The Bank of England Monetary Policy Committee has just announced that interest rates are on hold this month at 4 per cent., and the Governor of the Bank of England has made clear his view of the sort of talk engaged in by the hon. Gentleman: I think some of the headlines are unnecessarily alarmist … the fraction of household incomes which are used up in debts service is lower now that it was then"— the beginning of the '90s. He went on to say: There is no indication that the scale of debt problems have actually risen markedly in the last five years". It is not just me saying so; it is also the Bank of England.

Mr. Ken Purchase (Wolverhampton, North-East) (Lab/Co-op)

Notwithstanding that reassuring reply, does my right hon. Friend agree that there is a strong underlying and continuing problem with store card debt run up by young people, where the rates of interest—30 per cent. plus—can only be described as usurious? Does my right hon. Friend agree that finance companies are making bigger profits by providing financial services for these purchases than the manufacturers are managing to turn round from the goods they are selling? Will my right hon. Friend look at the problem and ensure that young people get a fairer deal when they go to the store for whatever they need?

Mr. Brown

We have received the Treasury Committee's report on consumer credit and shall be replying to it. At the same time, when we bring the Budget to the House, we shall have the Miles report on the mortgage industry. It is absolutely true that the DTI's consumer credit White Paper tries to deal with cases where there are unscrupulous lenders or where excessive costs are charged for borrowing.

In answer to the question that has been put to me about the macro-economic position, it is totally unreasonable for the Conservatives to claim that somehow the growth and stability that we have managed to create in the economy are unsustainable. Every time they have made that claim, they have had to retract it.

Mr. James Clappison (Hertsmere) (Con)

Is not one cause of indebtedness the fact that many people no longer have savings to fall back on a rainy day? Given the collapse in saving under this Government, as measured by the average savings ratio, which is way lower than it was under the last Government, will not the withdrawal of tax concessions on personal equity plans and individual savings accounts make this even worse? Why do the Government seek to do this? How many people will be affected?

Mr. Brown

The hon. Gentleman should get his facts right. The lowest recorded annual savings ratio was in 1988 under the Conservative Government, at 4.9 per cent. The savings ratio in this country today is 5.9 per cent. —more than double the savings ratio recorded in the United States of America. If the hon. Gentleman has real criticisms, they are against his colleagues.

Richard Burden (Birmingham, Northfield) (Lab)

While my right hon. Friend is obviously right to draw attention to the Government's achievements at the macro level, he has acknowledged the real problem of personal debt for many people on low and fixed incomes, too many of whom fall prey to loan sharks. Does he agree that one important way of addressing this problem is to find pathways out of poverty? Although the Government have made a great contribution through tax credits, the new deal and so on, the private sector could make a big impact through greater efforts in community reinvestment to regenerate communities. What is my right hon. Friend doing to encourage that?

Mr. Brown

We are discussing with many voluntary organisations and charitable bodies exactly those issues: how we can encourage through social enterprise more investment in communities that historically have low levels of investment and also low levels of employment. I agree with my hon. Friend that where we see unscrupulous lending practices we must act against them, and we shall make proposals on that matter. Where at the same time we see situations in which mortgage charges are too high—this is what the Miles report is looking at—we shall come forward with both information on the matter and proposals where they are necessary. But I have to tell my hon. Friend that those who allege that the stability of our economy was not hard won and hard earned are completely wrong. We have managed to create stability in this country at a level that was never achieved under the previous Government.

Mr. David Cameron (Witney) (Con)

Further to the question asked by my hon. Friend the Member for Hertsmere (Mr. Clappison), what is the Chancellor's reaction to the head of Fidelity, who said that the Government's policy on saving was a complete mess? The Chancellor is fond of always saying that he will not take lectures from anybody. Will he listen to the person responsible for selling savings products to many people in this country?

Mr. Brown

The hon. Gentleman's party said that ISAs would not work—

Mr. Cameron

What about Fidelity?

Mr. Brown

This is my answer to Fidelity: 15 million policies have been taken out and £120 billion has been invested as a result of the creation of ISAs. That has been a success story, not the failure that the hon. Gentleman says it is. I have just given the figures for the savings ratio. It is about time that the Conservative party congratulated us on our economic record.