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The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): I congratulate my hon. Friend the Member for Forest of Dean (Diana Organ) on securing the debate. I am delighted to have the opportunity to discuss this subject with her. I know that she recognises the work that the Government have already done through the launch of the consumer credit White Paper, which dealt with many of the issues to which she alluded, including greater transparency of credit agreements and the need to ensure that newspaper adverts carrying these apparently wonderful offers make it very clear what is proposed.
My hon. Friend is right to point to how the consumer credit situation has changed dramatically. The Consumer Credit Act 1974 is 30 years old. Thirty years ago, there was one credit card and an annual debt of about £32 million, at today's prices; now, there are 1,500 products in the marketplace and debts into the billions. It was therefore right and necessary for the Government to honour their manifesto commitment to examine the issue of consumer credit, and a great deal of work has been done. This debate is fortuitous given the announcement in the Queen's Speech of the forthcoming consumer credit Bill, which will address many of the issues that my hon. Friend raised. As far as I am concerned, as the Minister responsible, the transparency and responsibility of the lender, and the responsibility of the borrower, are key issues.
I pay tribute to the Select Committee on the Treasury, which has done a great deal of work on store card interest rates, and to my hon. Friend for the work that she is doing in her constituency and for listening to the citizens advice bureau and to several other organisations that offer advice. I also thank her for the parliamentary questions that she has tabled to make sure that we cover properly the many issues that she raises.
My hon. Friend raised over-indebtedness, which has several distressing effects and costs for the communities that we represent, whether rural or urban. She spelled out clearly some of the specific problems that it has caused in her constituency. I am sure that hon. Members would recognise them from all our surgeries. The papers have been full of the fact that the amount of personal debt is at an all-time high.
As my hon. Friend said, we are told that personal debt is currently more than £1 trillion, or approximately £25,000 owed by every adult or £40,000 owed by every household. We have to be clear about what that means. Some four fifths of the £1 trillion represents investment in property and roughly a quarter of the population are buying their houses and securing their futures. By doing that, they are much better off than previous generations.
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Of the more than £1 trillion, some £179 billion is unsecured consumer credit. Of the consumer credit loans that are taken out, some 70 per cent. are for home improvements or to purchase cars. All that increases the net worth of individuals. As my hon. Friend said, the majority of credit is used sensibly. Indeed, credit is an integral part of the daily lives of many of us. It is used to benefit consumers and improve their situations and to allow them to participate fully in the marketplace. Consumers use it to smooth out their income, spreading payments over successive wage packets. That makes a vital contribution to the United Kingdom economy, driving economic activity by allowing consumers flexibility in the way in which they choose to access the marketplace and manage their finances, and enabling resources to be put to the most efficient use.
Despite global uncertainty, households remain confident in their finances. Although debt has been increasing, assets have also risen. Household total net wealth has increased by more than 50 per cent. since 1997. Real household disposable incomes have continued to improve, growing by 3.1 per cent. a year on average since the first quarter of 1997, compared with 2.3 per cent. in the 199297 Parliament.
The low interest rates that greater macro-economic stability delivers have ensured that household interest payments remain low by historical standards. That contrasts with the over-expansion in demand in the late 1980s, with interest rates peaking at 15 per cent. That led to the collapse of the housing market. The proportion of repossession now is historically low. Although debt is rising, household finances are in a strong position, with net wealth up by nearly 70 per cent. since 1997.
Households pay a significantly smaller proportion of their income in interest payments than they did in the early 1990s. Household total interest payment is 7.6 per cent. of disposable income. That figure is for the first quarter of 2004. Household total interest payment peaked at 15.1 per cent. in the second quarter of 1990. Household total net wealth has increased by more than 50 per cent. since 1997 and household wealth is almost six times greater than the debt.
Since 1997, UK gross domestic product growth has been more stable than that of any other G7 country. Employment has increased by more than 1.8 million since early 1997 and unemployment rates are close to their lowest levels since the 1970s.
The majority of those who become over-indebted do so through a sudden change in circumstances: a death, an illness, a separation, divorce, sudden unemployment or a business failure. However, some consumers do not use credit sensibly. Indeed, they use it irresponsibly. They over-spend and run up huge sums of debt that they cannot repay, thus becoming over-indebted. However, I am pleased to say that they are a minority.
More worrying are the people who are over-indebted due to low incomes or mental health problems. We need to help those vulnerable consumers, who are often unable to help themselves. For people on low incomes, over-indebtedness is a very real possibility, which can result in significant costs for the individual and society. There are clear links with the problems of financial exclusion, in which the Treasury has a special interest.
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We have all heard distressing stories of people who have found themselves in debt and resorted to acts of desperation to get out of it. There have been some well publicised suicides recently, due to debt. They are a minority of cases but they act as a focus of attention on the costs of over-indebtedness. All too often, they could have been avoided if the victim had sought or been given help.
I am well aware that my hon. Friend knows that the Government take the issue seriously and that she supports our work to tackle over-indebtedness and ensuring that help is available. As she said, on 20 July I published "Tackling Over-indebtednessAction Plan 2004", which sets out the large number of initiatives that various Departments and others are undertaking to deal with the problem.
It is clear that many issues may be involved, such as how local government and central Government collect their own debts, which can contribute to the problem. However, the plan sets out a number of priority areas that need to be addressed. These include improving financial literacy, ensuring access to affordable credit and improving access to free debt advice, among others.
I chair jointly with my hon. Friend the Under-Secretary of State for Work and Pensions, the hon. Member for Gravesham (Mr. Pond), a cross-Government ministerial group on over-indebtedness. This ensures that progress and new thinking on measures to tackle over-indebtedness are joined up and take account of other Government initiatives. The group includes colleagues from Her Majesty's Treasury, the Department for Constitutional Affairs, the Office of the Deputy Prime Minister and the Department for Education and Skills, all of whom have a keen interest in this area, particularly with regard to how we ensure that consumers are empowered to deal with over-indebtedness.
Two further groupsan official group including representatives from those and other interested Departments and an advisory group including representatives from consumer groups such as Citizens Advice, the credit industry and academiahave also been convened to support this work. We have publicly committed to update on progress on the priorities set out in the report during the summer of next year.
My hon. Friend the Member for Forest of Dean raised the issue of money advice from CABs. I have to say that they are doing a great job, but are under a great deal of pressure; I acknowledge that pressure. Citizens Advice and other free debt advice providers offer a vital service for consumers who find themselves with debt problems. The majority of people who are approached and asked will be aware that Citizens Advice provides free debt advice, among other offerings, but it deservedly has a well known brand and does a wonderful job providing holistic advice to people who need help with their debt problems.
As my hon. Friend said, individual CABs are contracted by the Legal Services Commission to deliver a certain number of hours of advice. It has been recognised that often the contracts entered into with CABs oblige the staff to carry out a number of bureaucratic administrative tasks. The Legal Services Commission is conducting research on contracting with the not-for-profit sector and is likely to publish a report
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in the new year. It has already looked at ways to undertake audit and inspection in proportion to contract value and tailored to risk in solicitors' contracts under its preferred supplier pilot.
So, I fully agree with my hon. Friend as to the importance of ensuring that all those who benefit from the supply of free debt advice should support it. She gave examples from her own constituency of who contributes and who does not. We must ensure that everybody contributes and we are looking at the issue of sustainable funding. As she said, too much time and resources are wasted by management teams in free debt advice providers, the majority of which are charities seeking renewals of annual funding.
We are encouraging funders of free debt advice services to commit funding for three-year periods, allowing providers greater certainty. We have been encouraged by evidence of the credit industry's willingness to provide such sustainable funding, with the Royal Bank of Scotland committing £1.8 million over three years to providing training for free debt advice providers. We will continue to monitor which companies support the initiative and will take the appropriate action with those that do not.
The Financial Services Authority is developing a national financial capability strategy that aims to provide consumers with the education, information and generic advice needed to make financial decisions with confidence. Financial capability will allow consumers to make the most of financial opportunities and to avoid expensive and inappropriate products.
The Government are committed to ensuring that consumers attain a reasonable level of financial literacy education and recognise that there is a strong link between poor financial understanding, poor basic skills and social exclusion. The FSA has set up seven groups: schools, young adults, work, families, borrowing, retirement and advice. Particular attention is being focused on teaching children in schools about credit and other financial products. If my hon. Friend will take my word for this, that is an area where I feel a great deal of attention needs to be applied. We will be ensuring that that is the case through the consumer credit Bill and the supporting policies that we need to deliver those things.
I also strongly support the need for high-quality, independent, free debt advice. The capability to access free debt advice is extremely important in helping people cope with their debts. It is therefore imperative that we ensure that everyone is aware that appropriate advice and help is available, and that they are able to access it. My hon. Friend is aware from her local citizens advice bureau that the demand for debt advice is putting a lot of pressure on the advisers supplying it. All free debt advice providers are reporting rises in the number of people approaching them for help and the number of people being helped. A number of those people are seeking help earlier in the cycle than had previously been the case, which is encouraging. But there are still more people trying to access free advice services than there is capacity to deal with them. We are considering innovative ways of addressing that issue, working with the credit industry and the free debt advice sector.
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For that reason, I strongly welcome and support the work taken forward jointly by the Consumer Credit Counselling Service, Citizens Advice, the Money Advice Trust, Advice UK and Payplan, with the support of the credit industry and Government, to develop a gateway that will allow consumers to be referred to an appropriate service for their needs. The gateway will provide an additional route into those services. It will provide a point of contact, which will filter calls, identifying the requirements of the caller and directing them to the appropriate advice provider for their circumstances. The caller will then be passed on to one of the free telephone debt advice providers involved in the gateway for advice straightaway, or their details will be passed on to one of the participating face-to-face providers for an appointment.
Evidence from the proof of concept stage, which is currently being carried out in Yorkshireno coincidenceindicates that the gateway is providing a valuable additional service. We are expecting to pilot the gateway early next year, and when operational, we hope that it will be able to relieve some of the pressures currently facing citizens advice bureaux and others. We have focused in the first instance on telephone advice as it is a particularly cost-effective means of providing advice, accessible to large numbers of people easily, with no geographical limitation. Evidence from the evaluation of the National Debtline made it clear that while most people would prefer to access face-to-face advice, 85 per cent of those who use telephone advice are satisfied with this means of providing advice. We recognise the importance of face-to-face advice for vulnerable consumers: for example, those with low financial capability skills and those needing support and representation among others. And we recognise the burdens that that places on free face-to-face providers such as citizens advice bureaux, and we are taking steps to address those.
As announced in the 2004 spending review, the Government wish to see a significant increase in the capacity of the free face-to-face money advice sector over the spending review period. The Government will invite proposals to expand the provision of advice from potential providers and will also pilot different models of debt outreach. More detail on those proposals will be published later this year.
My hon. Friend talked about stronger enforcement and what we are doing in that regard. The current regulatory regime has significant shortcomings, in particular with regard to the OFT's powers to pursue complaints against companies acting in a manner which calls into question their suitability to hold a consumer credit licence. The Bill will strengthen the licensing regime to regulate the modern credit market effectively in order to protect consumers. The reforms give the OFT more powers to keep rogues out of the market and to regulate businesses in the market proportionately. The new licensing regime includes: an improved standard of fitness testing, allowing the OFT to look at competence to conduct consumer credit business; the ability to impose intermediate sanctions on licensees; better powers to obtain information; and indefinite licences to be monitored routinely by the OFT. Various consumer groups have been given powers under the Enterprise Act 2002 to launch super-complaints. A super-complaint would be, for example, where the
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National Consumer Council brought a super-complaint against the home-collected credit sector. Citizens Advice has been given similar rights to bring super-complaints.
A great deal of work is going on in this area. I am grateful to my hon. Friend for raising these issues, which particularly concern her in her constituency, but which affect all Members of the House in our surgeries. It is a vital area of public policy, in which we need to get the funding regime right, in terms of how we support Citizens Advice and similar bodies. The loan shark hunter pilots that we have introduced in Birmingham and Glasgow remove those people who offer
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extortionate credit unfairly. The new unfair credit test will lower the hurdle, so that people can get out of unfair agreements.
While a great deal of work is being done, there is a great deal more to be done. I hope that we can sort out the difficulties affecting citizens advice bureaux. Negotiations are taking place, as she knows, in terms of funding
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