Amendment of the Law

Stella Creasy Excerpts

Wednesday 23rd March 2011 Commons Chamber

[Stella Creasy (Walthamstow) (Lab/Co-op)]

I share other Members’ pleasure in talking in a debate that has had so much heat and also the light of the maiden speech made by my hon. Friend the Member for Barnsley Central (Dan Jarvis).

I want to speak about a question that has been puzzling me for some time. How can the Government be so keen to show that they are tough on the national debt yet so blind to the growing crisis of personal debt that their policies are stoking? Families across Britain today will have listened to the Chancellor and wondered if he really understands the financial pressures they face—if he really has, as he said, done all he can to help them—because of the perfect storm of challenges hitting millions of homes across the country. Thanks to the VAT rise that he introduced, average families will pay an extra £300 to £450 a year in VAT and pensioners will pay an extra £275. Also, the benefits that help many families, such as tax credits and child benefit, are no longer there for them. That is a key concern for many of my constituents who have large families and who just tip into the higher tax bracket because of the London weighting on their wages.

Thanks to the Chancellor’s cuts, our economic recovery is stalling, which is why 8% of our working-age population is now unemployed. That is the highest level since 1994 and is set to rise further. Those people are in a job market in which 10 people are chasing every job and the situation is worse in London, with nearly 13 people chasing every job in my constituency. As a result of the cuts in the public sector, 130,000 people lost their job last year and another 170,000 families have members who are on redundancy notices. Buried in today’s papers are predictions that another 130,000 people will be made unemployed next year. Even those who are managing to stay in work are getting less because of the public sector pay freeze. The consumer prices index and the retail prices index are rising, reflecting the growing cost of living as clothes, food, energy and travel all cost more.

We are already seeing the impact of those problems. According to the Consumer Credit Counselling Service, London has the highest demand in the country for debt advice. Nationally, half of its clients gave unemployment or reduced income as the reason for their debt problems. In 2008-09 there were twice as many crisis loan applications as in 2006-07 and half of those applicants made two or more applications. Barnardo’s has reported a rise of 20% in the number of applications for its emergency loans for families and the UK now has one of the highest levels of personal debt of any country in the world.

There are 60 million credit cards in circulation in our country, for 14% of which customers can afford to make only the minimum payment. We should be extremely alarmed by what some people are using their credit cards to pay for. Shelter has highlighted the fact that one in 12 households in London is using credit cards to pay for mortgage or rent. Across Britain, the figure is one in 20 families. In the face of the changes the Government are making to our economy, families across Britain are struggling to make ends meet. That is vital to our economic recovery because, as we all know, credit is key to that recovery. Recently released figures show how consumer confidence is falling. People are not buying and spending in the way that our economy needs them to if it is to recover, but we should care about that and about personal debt not only because of the figures and the economic conditions but because millions of families now live with the fear of debt.

Half of all British households are worried about their debts and how they are going to pay them. Some 44% of households find that there is too much month at the end of their money and try as they might they cannot make what they earn cover what they need to spend. The problem is only going to get worse. In a recent survey, 43% of people said that they expected their personal financial situation to deteriorate over the next six months. This is not about buying new TVs or fancy holidays—it is about families struggling to feed their kids, pay their bus fares or keep their car going so they can get to work. It is about people having to cut corners or shift money from one credit card to another, chasing deals. It is about people worrying about paying their mortgage, affording school uniforms, arguing about debt and suffering sleepless nights. It is about people wasting time applying for jobs when so many jobs no longer exist.

I judge today’s Budget by what it will do to address those problems and to help families across Britain to make ends meet, not least because 20% of those who say they are struggling blame the recent tax rises for that. As the Institute for Fiscal Studies has said today, the Budget is giving with one hand and taking away lots with the other. The crippling impact of the rise in VAT will more than cancel out any change in the income tax threshold. Rather than offering corporation tax cuts to big business, we need to do more to get jobs and growth back into our economy. We need to put the needs of those families first but instead the Government are privatising personal debt.

At a time when people need help accessing credit to keep a roof over their head, the Government are taking away their options for help, with potentially disastrous consequences. They are taking away the social fund and capping the number of crisis loans for living expenses to just three a year, at a time when even more families are struggling.

I welcome the support that the Government have given for credit unions, but it will take a generation for them to become regarded as a serious, mainstream way for families across the country to access credit. As we all know from our surgeries and our conversations on the street, in these difficult economic circumstances, our banks are refusing to lend to businesses and individuals. The truth is that, with no real help in the Budget, there is very little option for many in our communities apart from the high-cost credit market, one of the few areas of our economy that is growing under this Government. Legal loan sharks are profiting from the perfect storm of rising living costs and falling wage packets for families across the country. Those people need our help now, not in the future.

Already, a quarter of payday loan customers cannot borrow from anyone else. They are sitting targets for such companies, whose business models rely on locking people into borrowing at an extortionate yet legal rate, so that what seems like a short-term solution to financial problems quickly becomes a long-term debt. We know that there has been a fourfold increase in payday lending since the recession began, and that due to a lack of regulation in the market in the UK, The Money Shop, Wonga, Provident, BrightHouse and other companies are expanding across the country at an alarming rate. Indeed, they have already pointed to the Government’s policies as increasing their customer base.

The problem will only get worse, as the Institute for Fiscal Studies predicts that households’ real incomes will be lower than they would have been without the recession. The Governor of the Bank of England predicts that real incomes will stagnate because of the weak condition of the labour market. That means that there are likely to be more and more families in the year ahead finding that they cannot keep their heads above water financially, but the Government have yet to lift a finger to help them. Even if the Government will not do anything that the Office for Budget Responsibility says will increase growth in the economy—we know that the plans put forward today have already been factored into the OBR’s growth predictions—they could at least take action on the cost of credit.

Back in February, I warned of the problem, as Members across the House called for a cap on the cost of credit. The Government sought to do what they could to delay taking action. Today, I am giving notice that I will be seeking support for a similar measure in response to the Budget. We can learn the lessons of windfall taxes that targeted the behaviours of particular companies. I want the Budget to review whether the set of companies that I am talking about ought to have their tax systems changed to discourage them from behaving as they do. If the Government will not regulate them, perhaps it is time to use the tax system to deal with legal loan sharks, just as we do with cigarettes and their toxic impact on our communities.

I hope to secure support from across the House for making such a measure part of the Budget, and to challenge the Government not to continue to sit on their hands when there are growing levels of personal debt crippling families in our communities. Introducing such a measure in the Budget could, for some families, be the difference between getting into hundreds of pounds of debt and thousands of pounds of debt. That could be a massively welcome relief for the families who are looking at today’s Budget and finding little to help them to make ends meet, and who are therefore having to turn to such companies.

We know that debt in itself can become a barrier to finding employment, as the emotional consequences and financial penalties become too much to bear. If we do not act to protect the poorest communities from unaffordable credit measures, we will all pay through higher welfare bills, lower spending and a lack of growth in the economy. I hope that the Chancellor and his Treasury team are listening to the needs of those families, and I hope that the Government will finally act to end legal loan sharking, so that we can at least get some good news out of today. I do not believe that they have done all that they can to help families who are struggling with the cost of living. If they will not listen to me, perhaps they will listen to a famous lady who I know has been an inspiration to many Government Members. She once argued that if a person could understand the problems of running a home, they were closer to understanding the problems of running a country. The Budget shows that the Government understand neither, and the British people will suffer all the more for it.

[Chris Williamson (Derby North) (Lab)]

Does my hon. Friend agree that at a time when so many more people in society will face huge debts, it is wrong for Derby city council to cut the welfare rights and debt advice provision for local people in my city?

[Stella Creasy]

My hon. Friend makes an important point. There are families struggling to understand what options are open to them. It is vital to support debt advocacy services. That is why I proposed that in my Consumer Credit (Regulation and Advice) Bill and why it is all the more pity that the Government sought to delay action on that measure—