Debt (Hansard, 17 February 2003)

§ Lord Davies of Oldham
My Lords, as the noble Lord, Lord McIntosh, said on 3rd December: The Government continue to fully back the judgment of the Monetary Policy Committee in delivering macro-economic stability. The MPC is alert to the risks associated with further expansion of household debt, as it made clear in its November inflation report. However, households' total interest payments are now only 7.3 per cent of their disposable income compared with a peak of 15.1 per cent in 1990 and an average of 9.3 per cent over the period 1979–97".—[Official Report, 3/12/02; col. 1022.]

§ Baroness Wilcox
My Lords, I thank the noble Lord for that Answer. I am pleased that the Government are concerned about the levels of personal debt. Therefore, perhaps the noble Lord can enlighten the on the following question: how did the DTI consumer affairs Minister in another place come to the conclusion that people were in control of their debt when research from the Financial Services Authority shows that 20 per cent of families now owe an average of more than £2,000 on credit cards and 6 million of the 30 million families in Britain have problems meeting their interest payments?

§ Lord Davies of Oldham
My Lords, the Minister made the point that people are able to manage their debt successfully. One obvious reason why households can be reasonably secure about their debt is that at the present time society enjoys almost the highest employment levels that have ever been known. Job security means that people can indeed be confident about their present position and their ability to take on debts which they have to repay in the future.

§ Lord Swinfen
My Lords, do the Government consider that the present policy of mortgage lenders is wise? Some years ago they used to lend only up to one-and-a-half to two times an individual's salary and only 909 a proportion of the value of the property whereas today I gather they will lend up to four times a salary and over 100 per cent of the value of the property.

§ Lord Davies of Oldham
My Lords, I believe that most of us recognise that those who supply mortgages do not take undue risks. They carry out a careful analysis of the future prospects of the economy and of the ability of an individual to repay a mortgage. Mortgage lenders are prepared to lend a greater percentage of income as mortgage repayment rates are low due to low interest rates. Therefore, households are able to repay larger amounts of debt.

§ Lord Barnett
My Lords, I congratulate my noble friend on answering even financial Questions, especially as he is my former PPS. Is he aware that in recent evidence to the House of Lords Economic Affairs Select Committee, the Monetary Policy Committee and The Times Shadow Monetary Policy Committee refused to express any serious concern on these issues and, like the Opposition, put forward no serious alternatives? Is my noble friend therefore content to leave the matter to them? Have the Government no policy in this area by way of taxation, mortgage payments or interfering with the private sector?

§ Lord Davies of Oldham
My Lords, it is 20 years since I was the noble Lord's bag carrier and sat at his feet but it goes without saying that I am still able to learn lessons from him. I agree with the main premise he puts forward: namely, that the Opposition raise anxieties which sometimes appear in the popular press but have precious little relationship to the way in which the real economy is working. We all recognise that this is a very bumpy time for the international economy. However, British people are in a relatively favourable position in terms of employment, low interest rates and the management of public finances.

§ Lord Newby
My Lords—

§ Baroness Gardner of Parkes
My Lords—

§ Lord Williams of Mostyn
My Lords, it is the turn of the noble Lord, Lord Newby.

§ Lord Newby
My Lords, I, too, congratulate the Minister on what is clearly his audition for the McIntosh award for ministerial versatility. Given that many financial services providers have aggressively marketed equity withdrawal and other forms of debt over the past couple of years, will the Minister encourage the FSA, as part of its remit of promoting public awareness, to issue strengthened guidance about the downside of excessive consumer levels of personal debt?

§ Lord Davies of Oldham
My Lords, the noble Lord makes a good point. People are able to borrow more against their mortgages and to remortgage when 910 property prices are rising at the present level. There is absolutely no reason to suspect that property prices will continue to rise at the rate that they have done in the past couple of years. Therefore, people need to exercise caution. The noble Lord is right to suggest that public bodies can play some part in that regard, not least against a background of a certain amount of misselling which has occurred with regard to other financial products and arrangements. It would do no harm for a public body to keep a close eye on the situation.

§ Lord Saatchi
My Lords, when was the last time the Chancellor of the Exchequer used the phrase, "the end of boom and bust"?

§ Lord Davies of Oldham
My Lords, I do not follow every word that the Chancellor says, although no doubt the noble Lord does and is therefore rather better informed than I am. What the Chancellor often identifies is the extraordinary levels of inflation and house mortgage failures in the 1990s that reflected a very significant bust at that time. He is in a position to assure and guarantee the nation that we do not get a repetition of that.

§ Lord Higgins
My Lords, does the Minister deny that the savings ratio has virtually halved since the Government came into office? Is that not very worrying?

§ Lord Davies of Oldham
My Lords, there are aspects of the savings ratio that we would like to see improved. That goes without saying. The noble Lord will also recognise that the fact that a very substantial proportion of the wealth of British people is held in their houses, against a background in which their homes are being significantly enhanced in value by the rises of recent years, means that people are able to look at matters with more confidence than they otherwise would.