Household Debt

Baroness Donaghy Excerpts

Monday 13th November 2017 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, I thank the right revered Prelate the Bishop of St Albans for initiating the debate. I speak about personal debt from some experience. For most of my life, I was the best friend of credit card company directors. I helped to buy their limousines and holiday homes and to pay for their alimony. I had friends who had maxed out on all their credit cards and could not afford even the minimum monthly payments on any of them. I considered myself better off because I always paid above the minimum suggested payment. I was fortunate because there came a day when I could pay off all my cards; I made a vow that those credit card directors would never again get a penny from me in interest. In the presence of the right reverend Prelate, I would not go so far as to say that I hope they are all poor and homeless, but they are certainly less well off without me.

It is too easy to borrow. If a friend suggests borrowing, they are possibly receiving a bung from the lending company for introducing you. Advice agencies are underfunded, and the one dread that all Governments have is that people will stop spending, because that is considered more important than household debt. First, a number of people are given a higher ceiling on their credit card spending without asking for it. Will the Minister say whether the Government are prepared to ban that activity? Secondly, a number of companies offer customers cash to persuade others to take out loans. For example, BrightHouse, which has already been in the regulator’s bad books, offers £220 to introduce a friend, who will have to pay back money at anything up to 99.9% interest. BrightHouse has said that that is common practice among retailers. Will the Minister say whether that unethical practice should be banned? My third concern is whether the various unbiased money advice organisations are receiving adequate funding. Is the Minister satisfied that those organisations are receiving sufficient funding to do their job, and that their ability to campaign on the issue of debt has not been reduced by government legislation?

On the broader issues, the Bank of England indicates that household debt is now about £1,558 billion—one of the reasons why Bank of England rates were increased. That figure represents 135% to 140% of household post-tax income. Some commentators try to reassure us that this can be set against household wealth, which is more than £11 trillion—10 times more than the household post-tax income. Unsecured debt has accounted for a third of the rise in household debt in the past five years. Some of that is because of low interest rates and the way people are financing their car purchases. Bank of England research has shown a new kind of borrower: people who are comparatively well-off, have savings and wish to take advantage of the favourable rates available.

Perhaps we should worry only about the losers: people who borrow because of delays in their benefits or who have faced some catastrophic change in their circumstances. The Money Advice Service said that there are now 8.3 million people in the UK with problem debts. Andrew Bailey, the chief executive of the Financial Conduct Authority, said that he was concerned by the number of people who need loans to keep going, particularly those working in the gig economy. He also said:

“I don’t think we have a sustainable solution, in terms of the provision of credit where needed”.


He has called for government involvement. Can the Minister say in what way the Government are involved, as has been suggested by Mr Bailey?

There are individual tragedies of homelessness and depression at the extreme end; too many people are at that end. I suspect that the Government would be more worried about spending slowing down than household debt. Consumer confidence is weak and sales are down. To paraphrase Robert Browning, “What of soul was left, I wonder, when the spending had to stop?”