Household Debt

Lord Bishop of St Albans Excerpts

Monday 13th November 2017 Lords Chamber

Asked by

[The Lord Bishop of St Albans]

To ask Her Majesty’s Government what is their assessment of the risks posed by current levels of household debt in the United Kingdom.

[The Lord Bishop of St Albans]

My Lords, I am deeply concerned—as I know are many other Members of this Chamber—about rising levels of household debt in this country. Households in the UK are taking on far more debt than they used to and overall are taking on more debt than they bring home in income. While the ratio of household debt to income has not yet eclipsed the 160% peak hit in early 2008, it currently hovers around 140%, a dramatic shift from the ratio of 95% in 1997.

Of course there are good reasons why families in this country choose to take on debt—perhaps to buy a house or another form of secured debt—but, nevertheless, we know that for some people the prospect of saving for a house is inconceivable and that those who are lucky enough to purchase a house take on an extremely high level of mortgage debt. This burden, especially for young people, should be recognised.

Even more concerning are rising levels of unsecured debt. Figures from the FCA last month indicate that a quarter of UK adults have been overdrawn in the past 12 months, and that more than 4 million people have already failed to pay domestic bills or meet credit commitments in three or more of the past six months. Forty-seven per cent of renters say they would struggle to meet their rent if payments went up by more than £100 per month. This heavy reliance on credit and lack of savings is understandably a source of vulnerability and anxiety for many and limits the ability to invest and make wise long-term financial decisions.

Debt is more than just a political or economic issue. It is also a pressing spiritual and social issue, both for the whole of society and individuals. The Bank of England, and particularly its Financial Policy Committee, will invariably have comments on the broader macroeconomic risk the increase in unsecured debt may pose. In September of this year, the Bank’s Financial Policy Committee warned banks that the rapid growth of consumer credit,

“is a risk to (Banks’) ability to withstand severe economic downturns”,

and,

“they have been underestimating the losses they could incur”.

The banking industry has an obligation to heed these warnings and act responsibly. I hope that deep and productive partnerships can be formed between financial institutions and the FCA to make changes that benefit consumers and encourage them to save, and that the Government will step in to regulate if needed.

For many, the experience of debt is profoundly destructive, isolating and surrounded by a significant and dangerous stigma. Five in every six over-indebted people who are struggling to make repayments do not get help for a wide range of reasons. A charity I know well—Christians Against Poverty—which operates 293 debt centres across the UK, including nine centres in my diocese, reports that one in 10 of the people it helps has previously attempted suicide. Tragically for many, the issue of household debt can literally be one of life and death. A survey conducted by Christians Against Poverty found that 40% of the people it helps have mental health problems and two-thirds have skipped meals due to debt—often parents who are not eating to provide for their children.

Coming from my position, noble Lords will not be surprised that I am interested in what the Christian tradition has to say about money. It affirms that each person has a moral responsibility to live within their means. That is a fundamental principle. However, illness or unforeseeable events can strike sometimes, which may result in unexpected debt. That problem is also addressed in the Scriptures: Nehemiah orders the cancellation of onerous and exploitative debt. In the Gospel of Luke, Jesus Christ says he has been sent by God to proclaim the year of the jubilee, referring back to the command given to the Israelites to forgive debt in recognition of their liberation from slavery in Egypt.

For many years, the Church of England has been at the forefront of both extending charity and finding solutions, particularly on a global scale, such as the work done by the Jubilee Debt Campaign around the millennium. The most reverend Primate the Archbishop of Canterbury’s more recent Just Finance Foundation has also been working nationally and with local churches to grow credit unions and support the community finance sector. The Church has produced resources to help congregations to run debt awareness and signposting workshops. We produced a financial education and school banking programme for primary schools, called Lifesavers, to build financial capability and encourage saving from an early age. If noble Lords have not been into a school to see one of the credit unions working there, it is worth going just to see the work they do to help young people to support themselves through being financially responsible and planning properly for the future.

I hope the Government can support that work and account for the burden that debt places upon families in the UK. The Financial Guidance and Claims Bill is a good start, but more work needs to be done. I welcome the recent announcement of the consultation on a breathing space for those dealing with debt, and I hope the Minister can assure me that this much-needed legislation will be introduced as soon as possible. I also trust that the Government will consider the effects of current welfare reforms, in the light of the current high level of debt of many families in this country. We are all hearing reports of numbers of people falling into rent arrears as a result of the extended waiting period before the first payment of universal credit, which are extremely worrying. There is much that is good in the universal credit proposal but it would be a great shame if, instead of simplifying the benefits system and incentivising work, the policy was remembered for driving people into greater debt—the effects of which can be prolonged and far-reaching—exacerbating mental health problems and, in the most extreme cases, leading to homelessness and family breakdown.

When we think about the Government’s upcoming Budget and hear news reports about inflation and interest rates, it is all too easy to forget that behind that, real people and families are struggling. They are not just statistics. In introducing the debate—I thank noble Lords who will speak in it—I hope that we can make a frank assessment of the risk posed to our nation and individuals by current levels of debt, and be able to work together to find solutions to this pressing social problem.