Household Debt

Lord Stevenson of Balmacara Excerpts

Monday 13th November 2017 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I too congratulate the right reverend Prelate the Bishop of St Albans on the first of the double header that he has this week. He has been very successful and he must tell us how that is done. It would be much easier if one could get more opportunities to raise issues under the QSD heading. I think that he will be happy with the speeches in the debate so far, which have been wide-ranging and covered a lot of ground. They have picked up on the points that he outlined and I look forward to the Minister’s response.

Of course, this is a tragic situation. The current levels of household debt are extraordinary and will be a real problem in the future. Moreover, the human cost, which everyone has mentioned, is important. Anyone who, like me, has listened in at the sharp end to phone calls from the Money Advice Trust, Christians Against Poverty or StepChange, of which I am the former chairman, will have heard the agony of people who are struggling with debt that they want to clear but simply lack any ability to do so. It is a really awful situation.

What do we do about it? I have five things that I want the Government to do: first, we have to look at pay. If there is not more money circulating in the economy, there will not be the resources to pay back the debts that are necessary for people to enjoy the lives that they want. The living wage would be a start, but there is also training to get people better jobs, along with better management of those jobs. Secondly, affordable credit needs to be made much more widely available. The problem is that people are squeezed to get the credit they want and have to pay far too much for it. It is too easy to borrow, as has been said, but we should be thinking about how to ban the usurious rates that are used. We still have problems with payday loans and we still have problems getting information around, so we need real-time credit sharing information. Consumers must also be treated more fairly by the regulator concerned. The regulator must stop being dominated by the fair markets and look at what consumer needs are. They do not require high-end usurious products.

The information that is available is one thing, but the financial products people need must also be made available on a fairer and more equitable basis. I take as an example insurance. Of course there is compulsory insurance, but there is also the discretionary kind, in particular household contents insurance. Would it not be fantastic if people could have access to what they actually need, but 39% of UK adults do not have household contents insurance, a figure that rises to more than 72% for those in rented accommodation? That is 10.5 million people without the basic cover required if they suffer a fire or are burgled. They cannot afford it. I do not have to remind the party opposite that it was people like Churchill who saw this early, going back almost 100 years. He wrote:

“If I had my way, I would write the word ‘insure’ over every door of every cottage and on the blotting pad of every public person because I am convinced that for minor sacrifices, families can be secured against catastrophes which otherwise would smash them forever”.


Mr Churchill got a lot of things right, and I commend him.

We need proper debt advice and insolvency arrangements. We have talked about bailiff reform, which is also important, to which I would add the breathing space issue raised by my noble friend Lord McKenzie. That needs to come in under the Bill that is before us and I hope that will be the case. The Government need to focus on this. I noticed that in their response to the excellent report by the Select Committee of your Lordships’ House on financial exclusion, the Government repeated a lot of the problems that that committee was trying to get at. In particular there is the worry about why the Government split their responses to financial inclusion, which is run by the Treasury, from those to financial exclusion, which is run by DWP. This is not helpful and we need something done about it.

We also need to pay more attention to the paradigm under which we operate. The Minister needs to respond to some of the worries about this. The paradigm under which most people tend to operate is to try to get as much education as they can and then to borrow a loan for a house, for instance. They then repay that over the years as they get better jobs and when they are able to repay the borrowing, they eventually retire on their pensions. I do not think that paradigm works any more and I wonder what thinking the Treasury is doing about which paradigm should replace it. My children do not expect to be in jobs for the rest of their lives—they do not expect to be in careers, in the tradition that we had when we were growing up. They are very worried about how they are going to survive. The Government have a responsibility to lead on this and explain what they want people to do, so that they do not have the worry and distress that is so common and which has been exemplified by the speeches today.

--- Later in debate ---

[Lord Stevenson of Balmacara]

I appreciate the Minister giving way as this is a time-limited debate. I wonder whether we can reflect for a minute on that. We have tabled an amendment for Third Reading of the Financial Claims and Guidance Bill, which was referred to by the noble Baroness, Lady Coussins. What the Minister has just said does not square with where we think we are on that issue.

[Lord Bates]

The consultation period is ongoing now. There is a schedule coming forward for Third Reading, which will be discussed. I was outlining the call for evidence that we have had and the consultation that we will have upon it. Of course the Government will make their position clear in respect of any specific amendment that may be brought forward at Third Reading.

The Monetary Policy Committee has made its decision to raise interest rates on a broad set of economic data, working closely with the Financial Policy Committee to understand its impact on households’ balance sheets. The independent FCA is responsible for the regulations in place to protect customers in their dealings with financial services firms. They include at their heart the requirement that firms must deal fairly with customers in payment difficulties. Its rules require lenders to consider a variety of options to help a borrower cope with difficulties. The right reverend Prelate paid tribute to a number of organisations that are working in the area of debt resolution. I pay tribute to the work of the noble Lord, Lord Stevenson, with StepChange and that of the noble Baroness, Lady Coussins, with the Money Advice Trust. I have seen the work of Christians Against Poverty. What it is doing is quite extraordinary, but more needs to be done.

The noble Baroness, Lady Coussins, asked when the financial inclusion forum will be set up. The forum’s objective is to bring together Ministers in departments with a remit to promote financial inclusion, regulators, especially the FCA, and key stakeholders to address financial exclusion. The financial inclusion forum will be co-chaired by the Economic Secretary and the Minister for Pensions and Financial Exclusion. The forum will be attended by Ministers from other departments, regulators and representatives from industry and consumer groups. It will meet on a biannual basis and review recent initiatives and progress.

The noble Baroness, Lady Donaghy, asked how concerned the Government were about the rapid growth in consumer credit as a potential risk to the economy. The FPC’s most recent assessment of the growth in consumer credit is that it does not present a material risk to economic growth, as consumer credit represents 11% of overall household debt. But again, that is not to suggest that we do not consider that it is a significant factor. The noble Baroness, Lady Donaghy, also asked what the Government are doing about the high cost of credit. The Government have transformed regulation of consumer credit through the use of the Financial Conduct Authority’s review of high-cost debt. We put a cap on payday lending and the egregious interest rates that were being charged there, which has led to payday loans halving in number since it was introduced.

The noble Lord, Lord Sharkey, asked specifically about car finance. Car finance companies are required to meet the standards the FCA expects of lenders, including making affordability checks and providing adequate pre-contractual explanations to customers. The FCA’s chief executive, Andrew Bailey, who the noble Lord referred to in his speech, said that he does not see the growth in personal contract purchase finance as a problem per se, as it recognises that a car is an asset. The FCA is looking at the car finance market to assess whether consumers are at risk of harm. The FCA is focusing on four areas: affordability checks; conflicts of interest between lenders and dealers, a point raised by the noble Baroness, Lady Donaghy; quality of information from firms to consumers, and whether firms are adequately pricing risk.

The noble Baroness, Lady Donaghy, asked whether advice agencies have enough funding. We set up the Money Advice Service, which has spent £49 million, and over 440,000 free-to-client debt advice sessions have been undertaken. We are setting up a new single financial guidance body, bringing together the Money Advice Service, Pension Wise and the Pensions Advisory Service. This will be more efficient, and I think less confusing for customers, and will direct money to front-line services.

The right reverend Prelate, the noble Baroness, Lady Lister, and the noble Lord, Lord McKenzie, referred to universal credit. DWP research shows that the majority of people claiming universal credit are comfortable managing their budget, and any need for financial or budgeting support is discussed at the outset. For those who cannot wait until their first payment, advances are available which provide up to 50% of a claimant’s indicative award straightaway, although I accept the point made by the noble Baroness—

[Lord Stevenson of Balmacara]

I am very grateful to the Minister for giving way. I gather that what is called inspiration may have arrived from the Box in response to my earlier point, and I would like to give him the opportunity to correct the record before we finish.

[Lord Bates]

I am very grateful for that. In response to the noble Lord’s earlier intervention on breathing space, the position has changed since that section of my speech was last drafted, and I will write to him—this is dynamic government, unfolding by the minute and of course responding, as always, to the reasoned arguments presented by the noble Lord.

The noble Baroness, Lady Donaghy, asked what we are doing to ensure that workers in the gig economy are protected from problem debt. Information, advice and guidance is available for free from the Money Advice Service, which provides specialist support for the self-employed through its funding of the Business Debtline, which supports sole traders in dealing with debts that they may incur. Around 25,000 small business owners were supported by Business Debtline last year, and 90% of those who accessed support from it stabilised or reduced their debt after its help. Again, that relates to the right reverend Prelate’s point that people out there who are facing considerable distress need to recognise that help is available and that the sooner they call on that help, the easier their problems will be to solve.

Finally, the right reverend Prelate asked whether the Government will be bringing forward legislation on a breathing space. I do not want to go over that territory again, so I will simply say that it has been a fascinating debate for all Members of the House, not least the Minister. I thank the right reverend Prelate for pursuing this matter, giving us the opportunity to debate these important issues which touch many people’s lives, and we look forward to continuing our discussion.