They recognise the problem but what will they do about it?
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Iain Duncan Smith, the former leader of the Conservative Party, has released a report into the British debt problem as part of his work on social justice. It presents grim reading.
‘Despite the economic downturn, we are still borrowing more. Total UK personal debt currently stands at £1.44 trillion – an increase of about £160 billion since two years ago. The present government hasn’t helped by getting rid of incentives to save and by raiding the pension funds ten years ago.
This is not just an economic issue: debt can wreck lives. A poll conducted by YouGov for the Centre for Social Justice found that over 40 per cent of British adults think that “serious personal debt” was the biggest social issue facing the UK. The human cost of debt is its effect on people’s self-esteem, their health and their relationships.
Relationship counsellors tell us that it is almost impossible for couples to discuss debt rationally, which creates huge tensions in relationships. In one survey, two out of five couples whose relationships broke down cited debt as a contributing factor. All this is made worse by the accelerating number of house repossessions around the country, estimated now at 123 every day.
Though serious personal debt affects middle and high income families, low income families suffer disproportionately. The same YouGov poll found that just under 40 per cent of respondents living in local authority or housing association accommodation experience serious personal debt, compared with about 20 per cent of the broader population.
Sub-prime lending is an established feature of our deprived communities. It is characterised by high interest rates, often well over 100 per cent on what are essentially short term loans and little or no competition between lenders. In the UK the only bona fide unsecured loans that people on low income can obtain, come from such doorstep lenders.
We know that debt is a cause of family breakdown, and often traps people in benefit dependency. Breakdown Britain called for the government to recognise that there was a big problem building up and urged a major policy change.
To make such a change we will need to expand, support and strengthen UK credit unions: a safe, local community source of credit at reasonable rates of interest to suit low income consumers. Other countries use them extensively; it is only in the UK that credit unions have been stifled. One excellent example of a credit union is run by Leeds City Council.
Furthermore, it is time to teach children about money at school, particularly about what it costs to borrow money. Too many children leave school unable to calculate the simplest of interest rate charges and are easily confused by the seller. We will also need to expand local community based debt advice. Voluntary sector organisations like Christians Against Poverty help families come to terms with their debt and help them plan and save their way back out of debt.
Finally, we will need to encourage Britain to develop a savings culture again. Although much can be done to improve the services offered and the regulations surrounding the credit industry, the heart of the issue is that more people have to be encouraged to save or we risk leaving the country with a debt overhang which will take very many years to clear and deepen the economic downturn.’
As with most politicians it is difficult to tell how much of this concern is real and how much is aimed purely at gathering votes. What is clear is that this report demonstrates the Conservative Party has a much clearer idea of the problem facing the British economy than the Government. Whether or not they will translate this into meaningful action remains to be seen.
