 Thursday,
23 November 2006
PERSONAL DEBT & FINANCIAL EXCLUSION
At a Conservative Party Debt Summit today, George Osborne
will present our policy proposals to promote social responsibility,
to address rising debt problems and to tackle social exclusion.
Key Message
Tackling personal debt and financial exclusion
is an issue of social responsibility. There is obviously a
role for government. It should ensure fair and proportionate credit
regulation and consumer protection, and promote financial education
and financial inclusion. Government, civil society and business should
all work together and each play their part.
Robert Key says...
Here in Salisbury and South Wiltshire the community
looks prosperous enough - but I know from my casework that levels
of personal debt are a real problem for hundreds of families - especially
in the run-up to Christmas.
The temptation to get easy credit is greater than
it has ever been - but the consequences of debt are as serious as
ever. So I welcome very warmly the Shadow Chancellor's initiative.
George Osborne is right to tackle this issue head-on as part of the
Conservative Agenda for building a better future for all.
The Problem
- Total Debt. Total consumer debt in the
UK is over £1.2 trillion (including mortgages), larger than the
UK’s annual GDP. The average UK consumer owes over twice as much
as the average Western European. Britain's personal debt is
increasing by approximately £1 million every four minutes.
- Credit Cards. In the UK, there are now more credit cards than
people. There are 31.6 million credit card holders, with
each person having an average of 2.4 cards. The average interest
rate on credit card lending is currently 15.72 per cent, around
11 percentage points above base rate.
- Financial
Distress. Overall, insolvencies are 55 per cent higher in
the current quarter than during the same period in 2005.
They are widely expected to top 100,000 for the entire year.
In the first three months of this year alone, there were as many insolvencies
as in the whole of 1997. In the last four years, the average
age of a bankrupt has fallen from 43 to 41, while the proportion
of younger bankrupts (aged between 18 and 29) has more than
doubled.
- Lack
of education. According to a recent FSA survey, approximately
15 per cent of 18 to 24- year-olds think that an Individual
Savings Account (ISA) is an iPod accessory, and 10 per cent
believe that it is a type of energy drink. 62 per cent of young people
said that if they got into money trouble or debt they would not be
able to name any advice or support services they could turn to for
advice. 94 per cent of 16 year-olds believe that it is important to
know how to manage money, but only 53 per cent have been taught how
to.
Our Policy Proposals
- Financial education should be taught in
schools between 11 and 18. A recent study by the Institute
of Financial Services found that 79 per cent of the population
did not understand APR (Annual Percentage Rate), and 50 per
cent did not understand what 50 per cent meant. We will work
with the Citizens Advice Bureau and other bodies to promote
the teaching of financial capability in schools. For example, we will
look at ways of broadening the remit of schools’ enterprise
teaching budgets to include financial capability lessons, and providing
teachers with financial literacy skills to improve their confidence
in teaching these issues.
- Clampdown on store cards. We propose a seven-day
cooling off period, so that if a consumer signs up for a
store card, or other ‘revolving’ credit
facility, at the point of sale, this credit cannot be used
for seven days. This will give consumers the opportunity
to consider whether other forms of credit, such as a conventional
loan, might be more appropriate. We will consult with industry
and consumer groups over the implementation of this proposal.
- Much
clearer information for credit card users. Credit card companies
must go much further in providing clear information to consumers
in bill statements, advertising and other forms of communication.
Credit card adverts, application forms and statements should
all include “illustrative
scenarios” that explain exactly how much credit will cost if
only minimum repayments are made every month. They should also include
details of how long the credit will take to pay back if only
these minimum amounts are repaid, as well as information about how
much money could be saved if larger amounts are repaid each month.
- Prevent the unethical marketing of Individual
Voluntary Agreements (IVAs). IVAs are a legal contract between lenders and borrowers
to make agreed monthly repayments to pay off a (usually reduced)
amount owed. They are often aggressively marketed by so-called ‘IVA
factories’ - companies specialising
in IVAs - which often understate the negative aspects of
an IVA (long-term negative credit record, risk of losing
assets etc.) and often fail to state their fees clearly and
openly. We are calling on the Advertising Standards Association to
enforce the rules governing the marketing of IVAs more rigorously.
We are also calling on the relevant professional bodies, such as the
Law Society, to examine and police the quality of advice given by
IVA advisers to consumers more vigilantly.
- Tackling financial exclusion. At the moment, borrowers often have no choice but to stick
with their current home credit lender, as only this lender
has information about their home credit history. We want to increase
competition in the home credit market by forcing home credit companies
to conform to the same data-sharing standards as apply in the mainstream
banking sector. The Conservative Party will consult over proposals
to force these companies share data about individuals’ credit
performance, so that consumers are able to switch between
companies without losing their credit history.
- Crack down
on illegal loan sharks. People excluded from mainstream credit
because of a poor credit history or other factors, may turn
to illegal lenders. These lenders typically charge extortionate
rates of interest, and are often connected with illicit activities
and anti-social behaviour. We will ensure greater co-operation between
the police and other public bodies to crack down on illegal lenders.
At the moment, there is too little co-ordinated action against illegal
lenders, and the Government’s
failure in this area has allowed them to flourish. This doesn’t
necessarily mean new laws - just more rigorous policing of
existing ones.
George Osborne’s Speech:
Promoting Social Responsibility
This afternoon, the Shadow
Chancellor, George Osborne, will say:
‘We see tackling personal
debt and financial exclusion as an issue of social responsibility.
We’re
all in this together.
There is obviously a role for government.
It should ensure fair and proportionate credit regulation
and consumer protection. And it should also work to promote
financial education and financial inclusion.
There’s also an
important role for individuals. They should act responsibly
and take into consideration the future consequences of borrowing and
spending.
There’s a
role for civil society too. Charities and NGOs can often
reach people that the state can’t.
And they can come up with innovative local solutions to local
issues in a way that top-down government services often cannot.
But there’s
also an important role for businesses: businesses providing
impartial and high quality financial advice and training;
businesses providing credit that enables people to learn
new skills, start a business and get onto the housing ladder;
and businesses that show how being successful goes hand in hand with
lending responsibly and acting with integrity.
So this is what we
mean by social responsibility: government, civil society
and business all working together and each playing their part’. |
