Debt has become the norm in the UK

Stella Creasy MP writes for ePolitix.com ahead of her Westminster Hall debate on consumer credit regulation.

Last week I introduced a Ten Minute Rule Bill which seeks to tackle exploitative practices in the short-term high-interest lending market, and to provide greater access to affordable credit through credit unions as well as increased funding for debt advice agencies.

The Bill passed its first reading. At present the government has still not responded formally to my proposals. During today's debate in Westminster Hall, ministers will at last have to go on the record and answer whether they are prepared to intervene in this exploitative and uncompetitive market.

The UK now has one of the highest levels of personal debt in the world – in April this year, people in Britain owed over £1,460bn in private debt. Debt has become the norm, with most of us owing money on credit cards, loans or overdrafts. Borrowing money is sometimes essential to enable us to go to university, start a business or to buy a house, but there is a point at which borrowing becomes unmanageable for individuals.

Furthermore, the government's deficit reduction programme will put millions of people on low incomes under severe financial pressure, facing reduced public services, a greater threat of unemployment and public sector pay freezes.

In addition, the coalition has scrapped several of the previous government's measures designed to encourage saving, such as the Child Trust Fund and the Saving Gateway scheme. With fewer incentives to save, and greater pressure on their finances, many more people will be forced into personal debt.

Irresponsible lending can only serve to make things worse: some loan and credit companies charge annual interest rates equivalent to over 444 per cent (despite the Bank of England base rate being just 0.5 per cent).

Borrowing at these rates can tip vulnerable people into a cycle of debt and poverty. High debt repayments are linked to rent, council tax and utility arrears, as well as other poverty indicators such as constraints on job-seeking behaviour, poor diets, cold homes, and mental and physical health problems.

People need affordable short-term credit to make ends meet. Yet because millions on lower and middle incomes do not have good credit records, their loan applications are often turned down by high street banks, so they have no choice but to borrow at these exorbitant rates. As a result, the most vulnerable people in our society often pay the highest rates to obtain credit.

The government has committed to regulate excessive interest rates on credit and store cards, but is still allowing the much more harmful practice of legal loan sharking to continue unchecked.

A lending rate cap applied to all forms of consumer credit would address this negligence, and reduce the cost of borrowing in areas of the market that are not price-competitive. Coupled with action to increase access to credit unions, powers to help local authorities manage the presence of these organisations in their areas and financial help for groups offering debt counselling and debt management services, these measures would help provide a route out of personal debt for many families in Britain today.

This is what my Ten Minute Rule Bill proposes – it is now up to the government to say whether they will support action to protect Britain's poorest consumers.

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