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Mr. Tom Harris (Glasgow, Cathcart) (Lab): I welcome the opportunity afforded by our debate to discuss personal debt and savings, a crucial quality-of-life issue that affects all of our constituents and probably every Member of Parliament. When things are going well and we have plenty of money—we have more savings than debt—everything in the garden is rosy. When, however, we cannot cope with personal debt, lives and marriages start to fall apart, which has a huge negative impact on wider society. It is therefore entirely appropriate to debate the matter this evening.

The Government have created a climate in which people feel secure about their finances. When interest rates are at an historic low, inflation is low and unemployment is low, it is inevitable that people feel a little more secure about taking out personal loans and credit cards. That is even more the case when they realise that the value of their house has increased substantially since they bought it, perhaps only a short time ago. In those circumstances, people will inevitably get into personal debt that they can manage.

That is a fact of life and we should not necessarily be afraid of it, but the corollary is that when unemployment is high, interest rates are high and
 
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inflation is high, as happened under the previous Conservative Government, absolute personal debt may be lower, but the ratio of personal debt to personal income is much higher. As my right hon. Friend the Chief Secretary to the Treasury said, that ratio is about half of what it was eight or nine years ago. It is now about 7.5 per cent. Although personal debt in this country has gone up, I believe, to more than £1 trillion, the crucial point, which we should welcome, is that that is largely manageable debt, compared with what it was in times of recession.

Norman Lamb (North Norfolk) (LD): I accept that the ratio of repayments to income is significantly different from what it was in the early 1990s, but does the hon. Gentleman agree that the trend is very much upwards? Many people predict that we will return to ratios similar to those in the early 1990s.

Mr. Harris: There is no denying that recently the trend has been upwards, but I am not convinced that it will become as unmanageable as it was in the middle to late 1980s, when the country was in an interest rate crisis. Thanks to the Government's economic management, interest rates are historically low. The hon. Member for Wycombe (Mr. Goodman) on the Conservative Front Bench smirks at such a statement. It is bizarre that Conservative Members cannot admit that interest rates are now a fraction of what they were in the 1980s and 1990s.

Mr. Swayne: I appreciate that the amount of debt to which people are exposed is much larger, as the hon. Gentleman says. Interest rate sensitivity is therefore much greater. A relatively small movement in interest rates—much smaller than in the period he refers to in the late 1980s and early 1990s—will have a disproportionate effect on disposable incomes. For example, a 2 per cent. increase in interest rates could leave people paying a quarter of their disposable income in interest payments.

Mr. Harris: The hon. Gentleman is right. A 2 per cent. increase in interest rates would effectively be a 25 per cent. increase in payments. Interest rates are low, so it is inevitable that a small increase has a proportionately bigger effect than in 1989, for example, when interest rates went up from 11 to 12 per cent., which was an increase of only one eleventh.

Mr. Paul Goodman (Wycombe) (Con): I apologise to the hon. Gentleman for smirking, as he put it. I was merely recalling that in the early 1990s, our membership of the exchange rate mechanism was supported by the then Government, the Labour party, the Liberal Democrats, the CBI, the TUC and the Church of England bishops, as far as I know—indeed, by everyone.

Mr. Harris: That was before my time. All I remember is that I was encouraged at the time by the reassurances of the then Prime Minister, John Major, to take out a five-year fixed-term mortgage on my new house at 9.9 per cent. one month before September 1992, and for
 
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the next five years was paying substantially more than I would have been paying had I ignored the advice of the then Prime Minister.

The point I want to make is not partisan and has not been referred to in the debate so far. On a number of occasions in the Chamber I have fulminated against the instant gratification society and blamed it for all sorts of things. It is informative to bring up the subject in this debate. We are all bombarded day in, day out with images of stuff—possessions, designer labels, new cars and houses—in advertising, on television, the internet and radio and in newspapers. Some people who see pictures of David and Victoria Beckham in the newspapers may want to buy clothes of whatever designer label the couple is wearing, from shoes to sunglasses. On some of the cable channels, such as E4 or Granada Plus, almost every single advert is for a personal loan. If it is not for a personal loan, it is for insurance.

It is hardly surprising that when children, who are subjected to such images of the fantasy lifestyle that we are told we can pick up off the shelf, find on leaving school that they do not have the income to buy into the lifestyle that they have been told by the media for many years that they can achieve, they take out loans and get credit cards or store cards. If they want to buy something, the idea of saving for it is anathema; it is an unknown idea. If somebody wants something, they get it. How do they get it immediately? They take out a loan. That is the culture in today's Britain. That is how we are being told to live our lives. There is no suggestion that we should ever save up to buy anything. We are always told, "Buy it now, as you can have it now; simply take out a loan." That is not a healthy attitude for us to adopt.

At the end of last year, the Government produced a White Paper, "Fair, Clear and Competitive", looking at reform of certain aspects of the consumer industry. I want briefly to refer to four suggestions in the White Paper, one of which has been mentioned by the hon. Member for Twickenham (Dr. Cable), who referred to the ending of punitive penalties levied in the event of a borrower wishing to pay off a loan early. Sadly, the practice continues whereby banks and lenders put all the interest for a loan up front, even if it is a three or four-year loan, so that in the first six months or so when one is paying it off, one makes no impact on the capital. If somebody feels after six months that they can pay off the next two and a half years of the loan, they will find that they have to pay off all the debt, and that all that they have done so far is pay interest. That appalling practice takes a number of people by surprise who find themselves in the lucky position of being able to pay off a debt early.

The White Paper proposes that the rules on advertising should be changed to ensure, for example, that the annual percentage rate offered by a particular company has more prominence than other information about that company. That will be welcomed by anybody who wants to make a genuine comparison between the different products on offer. Another proposal is to introduce a standardised way to calculate the APR. Thank goodness for that. If a gun were put to my head and I was told to explain how an APR was calculated, I could not do so. When the White Paper was published, I was astonished to find that there is more than one way
 
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of calculating the APR. I cannot understand how the industry has managed to survive to date without a standardised form of APR, and I am delighted that the Government are now looking at ways of standardising it.

All those proposals will be especially welcomed in my constituency. In Castlemilk, for example, there is a shop that has, for many years, put on sale products and advertised hire purchase agreements with extortionate interest rates that are well beyond what anybody would expect even from the most notorious store card. It advertises those rates of interest not because its target audience and clientele can afford to pay them, but because it knows that they cannot afford them and that there is money to be made from getting people into debt to the point at which they cannot afford the repayments. For the sellers, that can often be a win-win situation, but for the ordinary people who are trying to make the payments, it is almost always a lose-lose situation. Another example, which a constituent brought to my attention, recently appeared in a local paper in Glasgow. It concerned a company that sold second-hand personal computers, and the repayments on its loans were structured to attract people who would not normally obtain credit from outlets such as PC World to buy a brand new computer. Such people prey on the most vulnerable and poorest people in our society, and I am glad that the White Paper will combat that practice.

Vera Baird : My hon. Friend's reflective speech makes me think what a bind such companies get ordinary people into. He made the strong point that the charges for paying off a debt early are onerous, but one also incurs onerous charges if one makes a late payment. If one does not toe the consumer credit companies' line, one gets oneself into deeper and deeper debt.

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