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Debate to be resumed tomorrow.
29 Nov 2004 : Column 467
Debt and Financial Advice (Forest of Dean)
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Ainger.]
9.59 pm
Diana Organ (Forest of Dean) (Lab): I have called for this debate as I was alerted to the escalating problem of debt and the significant rise in the demand for money advice by the Forest of Dean citizens advice bureau. Over the past two years, the team has dealt with debt totalling almost £4 million in 332 cases, and there has been a 35 per cent. increase in the number of cases over the past 15 months. The work is usually urgent, as more and more creditors have initiated county court actions to secure their debts and have secured charging orders on property, so clients may be at risk of losing their homes. It is complicated work. There is a pattern of increasing numbers of creditors: sometimes, people have as many as 20. It is not unusual for clients to have 10 separate credit card debts. The service, which is free, independent and of high quality, is straining to meet the needs of people with a debt crisis. The team anticipates that if the rising trend continues, it will be unable to provide an effective service to new clients—and that could be the case in the next few months.
This debate is particularly timely in the run-up to Christmas, when everyone is encouraged—nay, pressured—to spend and spend again in the high street, while in winter they also have to spend more on heating and electricity. The pressures on pensioners on fixed incomes and on families on low incomes to have what they might consider a proper Christmas are now high. For many, such pressures will mean a debt crisis in 2005.
Credit is now an integral part of our daily lives, but this was not so years ago. It is even a factor in driving our successful economy. Credit cards number two to every one person in the population. British consumers borrow at a rate of about £1 million every four minutes. The total amount of borrowing is more than £1 trillion. British household debt is now equal to the total amount owed by Africa, Asia and Latin America to international banks and through loans from other countries. The ratio of debt to income is at an unprecedented high. For most people, debt or credit is not a problem, as it is managed and budgeted and paid for, but for others it is unmanageable—it is out of control and it is ruining their lives. The National Consumer Council has said that about 6 million families are struggling to keep up credit repayments and are in a debt trap, taking on more borrowing to service their existing debts.
What I was alerted to by the Forest of Dean citizens advice bureau is happening across the country. Nationally, Citizens Advice has said that the number of debt cases has increased by 45 per cent. in the past five years, with a million people seeking advice from their money advice service. Some are using credit to survive from one pay day or benefit cheque to another. Such people see borrowing as the only way of solving their problems of paying ordinary household bills or getting a new bed or washing machine when they need it. They cannot consider the effect that it could have in future;
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they just have to deal with today. More than 3 million households now rely on the services of moneylenders or loan sharks. There has been an explosion in unsecured debt, which currently stands at £172 billion and is growing by almost 10 per cent. a year.
For anyone, it is far too easy to get credit. Anybody who goes up and down the high street tomorrow will be offered a 10 per cent. discount when they make their purchase, if they will only take up the opportunity of getting a store credit card. On going next door, they can get the same treatment and pick up another card. In the next store, another can be picked up. At the end of one day, somebody can have almost a pack of store or credit cards. They can spend up to their limit—hundreds and hundreds of pounds—and there is little to stop them doing so. It is easy and tempting for many, and at this time of year, it puts particular pressure on people to take up those opportunities, but it is not clear to people what is really being offered to them. Unlike other products, credit cards do not come with health warnings about the damage that they could cause to people's health and life. The interest rates are high enough quickly to double a £200 spend—if it is not paid off—through late payment charges and compound interest rates of more than 30 per cent.
Debt is not only accrued by consumers who are tempted on the high street. It can be accrued by unpaid rent, mortgage arrears and council tax, gas, electricity and water bills—the everyday needs of people trying to manage. If people do not know how to manage, have never been taught or given assistance and have never received help or advice about how to budget on a limited budget, the situation can become impossible.
Added to that, loan companies vigorously promote the idea that the way to solve financial difficulty is to round up the various debts into one, new, big debt with them. They advertise on television and radio and by unsolicited promotions through the letterbox, offering increasing numbers of people that way out. What are they really offering? They are offering more credit, even to people with a bad credit record.
The personal debt crisis must be tackled, because it is ruining lives. Advice and reliable information are required, and regulations and legislation must be implemented to control and protect people. I know that the Minister recognises the importance of advice, support and money counselling. He knows the importance of the money advice service provided by citizens advice bureaux to so many, particularly those who are less well-off in our community.
The Minister may not know that Forest of Dean CAB has warned that cuts in its vital money advice service are inevitable unless extra resources are made available. Its important work is funded by the Legal Services Commission, the lottery community fund, The Forest of Dean district council and Forest of Dean housing. Smaller funds are provided by town and parish councils, Gloucestershire county council, Lloyds TSB and others. Forest of Dean CAB's current expected costs for its money advice projects, which relate to debt work for 2004–05 is more than £126,000.
Forest of Dean CAB's main source of funding is its current three-year contract with the LSC, but it has told me that that contract is unwieldy. The system is not easy
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to use and involves burdensome administration—it contains silly little items such as having to work out six-minute blocks of time with a client. It is complicated and allows Forest of Dean CAB to claim only a maximum of 1,300 hours of debt work. Effectively, debt work is capped, but the number of people coming through the door is not.
The system allows Forest of Dean CAB to claim only for eligible clients, who are those on benefit or with very low incomes. Sometimes, the LSC refuses to extend the hours beyond the initial 10 allotted per case, but the work must go on, so Forest of Dean CAB funds it from elsewhere. We must examine that system and review the funding stream. The contracts from the LSC must be made more flexible, so that the citizens advice bureaux can deliver their vital work.
Some finance companies or banks contribute to money advice work. In the Forest of Dean, for example, Nationwide and Lloyds TSB contribute, and nationally Barclays, MBNA, Provident Financial and the Royal Bank of Scotland all provide funding for money advice—citizens advice bureaux are the largest free money advice suppliers in the UK. However, many other operators in the financial sector do not contribute. Many banks, finance and loan companies and all the high street stores that offer credit cards make no contribution, and they make considerable profit from credit. We need to build on the CAB's money advice to ensure that we have a network of independent financial advice. That should be supported by credit providers and the investment industry, with contributions from all major players in the financial credit sector and the independent money and debt advice sector, as well as from the Government through the LSC and local authorities.
More needs to done to give people accurate information on what they are getting into and what products are being offered them so that they can make the correct decision. We need stronger enforcement to prevent misleading—in fact, inaccurate—advertising by debt and loan companies. We need much better advice from a variety of sources so that people are able to go not only to the CAB but to other advice services. The consumer must be given a clear health warning on credit cards and store cards, and there must be much more vigorous monitoring and enforcement by trading standards in relation to the excessive interest rates on those cards. I hope that there will be a greater tightening up of the granting of credit licences to companies and more policing and regulation of their operations and tactics and use of unsolicited credit promotion.
In July 2004, the Government announced a series of initiatives, one of which was a pilot scheme offering a helpline that will act as a gateway to specialist debt advice. That will be of enormous help in the Forest of Dean, and we look forward to it. However, as the Minister no doubt agrees, free and independent information, advice and counselling from the existing provider—the money advice service of the CAB—is a vital service to the rising number of people facing a debt crisis, and we must ensure that it has the resources adequately to tackle this growing problem in future.
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I have suggested that the finance sector itself should make more contribution to these services. However, as the Government are already, through the community legal service, the major provider of funds for the money advice service, I now look to them to give the Forest of Dean citizens advice bureau the reassurance that the resources will be available to meet the rising demand for its much-needed services.
10.12 pm
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