Personal Bankruptcies (Hansard, 16 November 2004)

§ Lord Triesman
My Lords, the trend in personal bankruptcies has been steadily upward over the past 20 years and reflects the extent to which the use of personal credit has grown. However, the great majority of individuals are able to service their debts and the economic stability that we now enjoy—with low and stable inflation, low interest rates and low unemployment—means that the economy is far better able to withstand the effect of individuals' financial failure.

§ The Earl of Northesk
My Lords, I am grateful to the Minister for that reply. Notwithstanding his Answer, is it not the case that insolvencies in the self-employed sector have risen by 130 per cent year on year? Is that not a rather worrying development and trend in the economy?

§ Lord Triesman
My Lords, the biggest rises, which have been shown by research to have occurred right across the economy and not only in the case of the self-employed, are generally due to changes in the availability of credit in the economy and individuals' beliefs that they can sustain and manage that level of indebtedness. Of course, a smallish proportion of people find that they cannot, but that is the fundamental of it and there is no evidence at all in any of the research that there is sustained harm to the economy.

§ Lord Newby
My Lords, given the Minister's reply about the importance of credit in causing higher levels of bankruptcy and insolvency, does he accept that this arises in no small measure because of the reckless marketing of credit by financial institutions? Will he assure the House that the Government are proceeding with the review of consumer credit at a rather quicker pace than the snail's pace programme that was originally set out?

§ Lord Triesman
My Lords, I do not accept that there has been a snail's pace. A great deal is being done in terms of consumer credit on a formal level. We have 1302 also seen newspaper reports of Mr Matt Barrett of Barclays Bank giving advice as a senior banker on what people should be doing in order to secure their position in credit. The reality is that the rate of growth of assets and value held by individuals is at least 50 per cent greater than the rate of indebtedness. I make that point simply to illustrate that many people feel very much more confident about their prospects of handling debt. Of course, we would not encourage reckless indebtedness—that would never happen—but it is easy to understand, in a buoyant economy, why the processes are as they are.

§ Baroness Noakes
My Lords, may I clarify the Government's position on this matter? We often get a rather complacent view on these rising levels of debts. We have record levels of personal debt—more than £1 trillion. We now have record levels of personal bankruptcies. Do the Government believe that those are healthy signs in the economy?

§ Lord Triesman
No, my Lords; I do not think that anyone could conceivably believe that what was described as record levels of bankruptcy could be regarded as a healthy sign. No one wants to see individuals or businesses fail; that is axiomatic. However, in all of the advanced economies, research demonstrates that the relative level of rise of insolvencies of one kind or another—running in the United States at 10 times per capita the rate of the United Kingdom—is closely associated with the asset values that people have and the degree of security that they feel in the economy. It is actually a tribute to the economy.
On the last occasion when there was a very serious rise—I refer noble Lords to the period from 1989 to 1993—due to the wholly inappropriate management of the economy at that time, the level of insolvencies rose by more than 900 per cent and it was nothing to do with personal wealth.

§ Lord Barnett
My Lords, does my noble friend accept that, if the Chancellor is successful in persuading more young people to enter business at an early age, there is likely to be a further increase in bankruptcies, which would not necessarily be bad for the economy?

§ Lord Triesman
My Lords, I should think that it would be the wish of everyone, on all sides of the House, to live in a country where there is a spirit of entrepreneurship and where people are encouraged, particularly in the area of the new technologies. In an obvious sense, they involve a degree of risk because they are areas that people are breaking into and do not necessarily know as well. We want to see that entrepreneurship. We want to see at least some sensible taking of risk, because the buoyancy of our economy is dependent on those skills and that drive among our citizens.

§ Lord Burnham
My Lords, is it not true that the number of consumer debt issues that have come before 1303 the citizens advice bureaux has risen by 74 per cent over the past seven years? The Minister seems to be a bit sanguine about this country compared with the United States of America, but is that statistic not a very worrying one indeed?

§ Lord Triesman
My Lords, I am not sanguine about the level of indebtedness in the United States. Were we to match its levels and seek to emulate its levels of indebtedness and insolvency, we would have to get half a million people a year into bankruptcy and that would hardly be a prospect that any of us would advocate.

§ Lord Christopher
My Lords, does my noble friend agree that this is an important issue but almost the last issue about which one should generalise, which was the basis of virtually every observation from the other side? Unless one analyses the indebtedness and causes of bankruptcy to see how far they arise because people have gone into enterprises which are undercapitalised—a window cleaner requires only a bucket and sponge—it is ludicrous to make observations.

§ Lord Triesman
My Lords, I look forward to increased technology even in window cleaning, in which there will probably be developments. The most recent research in the area, by Professor Lawless at the University of Nevada, which involved several countries, suggests that it is a combination of life events—having a family or sadly getting divorced—plus wider economic issues, especially the movement of interest rates, that change how individuals deal with their debt portfolio. Individuals deal with it and some deal with it better than others. However, the border at which difficulties occur shifts with those life events and economic trajectories. We should always look at the research that shows how individuals deal with problems and not generalise.

§ Lord Mackie of Benshie
My Lords, is it not the case that most of the trouble is caused by the people who lend the money and then charge such enormous interest rates that they are able to stand the losses? There was a case in the papers recently when a judge wrote off a debt that had grown into hundreds of thousands of pounds.

§ Lord Triesman
My Lords, the rates of interest that are sometimes charged not only on credit cards but in relation to personal loans are bound to cause public apprehension and I wholly accept the noble Lord's point. However, generally speaking, consumers in this country have managed the levels of their indebtedness very well. In an overwhelming majority of cases, where people do get into difficulties—and difficulties are always to be lamented—much more advice is available. I drew attention earlier in my responses to the advice given by a senior official in Barclays Bank that one should always look out for wholly unreasonable rates of interest being charged and ensure that they are avoided.