Household Debt (Hansard, 11 November 2003)

§ Lord McIntosh of Haringey
My Lords, the Government aim to provide a framework of macro-economic stability and awareness of financial issues 1209 within which people can make informed, responsible decisions about how much debt it is prudent to incur. The Government are alert to the risks but debt at present remains affordable. Households' total interest payments currently equate to 7.2 per cent of their disposable income, which compares favourably with the average of 9.4 per cent of disposable income between 1979 and 1997.

§ The Earl of Northesk
My Lords, I thank the Minister for that reply. Can he confirm that personal bankruptcies are currently running at their highest level since 1993 and that in September alone a record £10.7 billion was borrowed? It may be that stability has replaced prudence in the Chancellor's affections, but against a background of rising interest rates, are not current levels of consumer debt likely to have a destabilising effect on the UK economy in the coming months?

§ Lord McIntosh of Haringey
My Lords, I am not certain whether personal bankruptcies are at their highest level. I do not doubt what the noble Earl, Lord Northesk, says. But since the previous figure was 9,000—although every single personal bankruptcy is regrettable—it is not an overwhelming figure in macro-economic terms.
On the issue of the amount of household debt, perhaps I may point out that household wealth is increasing at a very much faster rate than before. It is 50 per cent higher than it was in 1997, with the result that wealth is six times the amount of debt in this country. I consider that to be a very satisfactory result.

§ Lord Borrie
My Lords, does my noble friend consider that present rates of interest charged by credit card companies are fair and reasonable, or does he think that they are extortionate and therefore illegal under the Consumer Credit Act 1974?

§ Lord McIntosh of Haringey
My Lords, I think that that question is considerably beyond the subject matter of the original Question. I would be prepared to say that the Consumer Credit Act is in need of review, and we propose to bring forward a White Paper on the subject before the end of this year.

§ Lord Higgins
My Lords, why are credit rating agencies, which have a significant effect on the level of household debt, still not complying with the provisions of the Data Protection Act more than five years after it was passed? Why are individuals not able to ensure that additional information is held by such credit rating agencies, so that they can assess more accurately the creditworthiness of that individual?

§ Lord McIntosh of Haringey
My Lords, again, I think that that is beyond the scope of the Question, but the noble Lord, Lord Higgins, draws attention to a serious issue. That issue was responded to by my noble 1210 friend Lord Sainsbury after a debate in this House on 21st October. I refer the noble Lord to my noble friend's answer.

§ Lord Oakeshott of Seagrove Bay
My Lords, is the noble Lord aware of the latest figures in the Bank of England quarterly bulletin about the most important single component of household debt, which is mortgages? In particular, has he seen a fascinating chart which shows that house prices have hit today's ratio of one-and-a-half times average incomes twice in the past 30 years—in 1973 and in 1989? Is the noble Lord aware that each time house prices fell by one-third in real terms? Does the noble Lord believe that mortgage borrowers, over the past year in particular, have taken informed and responsible decisions?

§ Lord McIntosh of Haringey
My Lords, I believe that in aggregate the situation on housing equity is satisfactory. As a proportion of the total housing assets, mortgage debt is now 25 per cent. In the years referred to by the noble Lord, Lord Oakeshott—1973 and 1989—the mortgage debt was a much higher proportion of housing value. That indeed was dangerous.

§ The Lord Bishop of Hereford
My Lords, although there is undoubtedly a problem of excessive household debt in some cases, does the Minister agree that one useful way of making lending available to disadvantaged people in a controlled and prudent way, and subject to good advice, is provided by credit unions? Do the Government have a policy of positively supporting credit unions? Can the Minister say whether the number of credit unions is in fact increasing?

§ Lord McIntosh of Haringey
My Lords, I have had the opportunity to express the Government's support for credit unions from this Dispatch Box within the past few months. I am very glad to do the same again. I realise that it might be thought that my answers to a question which I interpreted in macro-economic terms—in other words, in terms of the economy— might have suggested a lack of sympathy with those individuals and households that find themselves in great difficulties. The Government are extremely sympathetic to every case of that kind. That is why we are reviewing the Consumer Credit Act; that is why we have the Financial Services Authority strategy on financial literacy; and that is why we are paying a great deal of money to Citizens Advice, which is money well spent.

§ Baroness Noakes
My Lords, does the Minister agree with the recent ITEM Club prediction that borrowing this year will be £36 billion—£10 billion more than the Chancellor's estimate? Does he further agree that the Chancellor is setting a very bad example to over-borrowed households in this country?

§ Lord McIntosh of Haringey
My Lords, I take it that the noble Baroness, Lady Noakes, is referring to government borrowing. The Question is about household debt. Pace the noble Baroness, Lady Thatcher, I do not think it is an issue of an analogy of government borrowing and household debt. This Question is rightly about household debt. That is what I have been responding to.

§ Lord Brooke of Sutton Mandeville
My Lords, how does the Minister reconcile the inexorable rise in household debt with the notorious risk averseness to going into debt of students and their families?

§ Lord McIntosh of Haringey
My Lords, I deny the inexorable rise of household debt. I have said that two things are important: first, the cost of servicing the debt is lower than it was under the government of the noble Lord, Lord Brooke; and, secondly, the ratio of debt to wealth is satisfactory—and much more satisfactory than in past years. As to student debt, the Government have very well thought-out and well publicised policies to deal with that issue.

§ Lord Mackie of Benshie
My Lords, does the Minister agree that it is far too easy for people to get credit cards. In supermarkets I have seen people flicking through their credit cards and selecting the one on which they still have some credit. Can the Government do nothing about that?

§ Lord McIntosh of Haringey
My Lords, I think that Mr Matt Barrett of Barclays Bank gave very good advice on that issue.

§ Lord Tomlinson
My Lords, has my noble friend fathomed precisely what it is that noble Lords opposite are asking for? Are they—the party that wants government off the backs of the people—asking for more intervention from the Government in this case? If so, the obvious areas of intervention would be to increase interest rates, to increase taxation or in some other way adversely to interfere with the economic performance of this country.

§ Lord McIntosh of Haringey
My Lords, I have no doubt that the noble Baroness, Lady Noakes, will find an opportunity to answer that question.

§ Lord Roberts of Conwy
My Lords, of the figure of £10.7 billion given by my noble friend Lord Northesk, £8.85 billion was accounted for by mortgage debt. Are the Government satisfied that not more money is being borrowed for productive investment?

§ Lord McIntosh of Haringey
My Lords, I do not think I understand that question. If the noble Lord, Lord Roberts, is referring to the savings ratio, it is true that it has fallen and now stands at not much more than 5 per cent. But I think he will agree that the savings ratio is an ambivalent measure of potential 1212 economic damage. I am sorry that I do not understand his question; I shall have to think about it and possibly write to him.