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Chris Bryant: When we considered the previous Bill in Committee in the last Parliament there was much debate about loan sharks. Of course everyone abhors those who use such ostensibly foul practices. However, the difficulty is that we have such a competitive market now that many of the credit card and personal loan companies are scrabbling around in a fairly small pond to try to get the few extra remaining people, so many of the marketing techniques that they use go well beyond what most of us would accept as normal practice. That rarely comes to light because it is the loan sharks that get in the newspapers and those companies are perfectly respectable in all other regards. Does the hon. Gentleman hope that marketing practices such as sending people unsolicited pre-approved applications for credit cards and personal loans will be done away with?
Charles Hendry: I shall come on to that point. I am grateful to the hon. Gentleman for his intervention and hope that he can be persuaded to serve on the Committee yet again. He addresses extremely important issues and the sort of problems that need to be stamped out. There is no doubt that most people practising in the field operate reasonably and responsibly, but if people step over a mark, they need to know that legislation will be there to clamp down on certain activities.
Debt itself is not bad, as the Minister said, but unaffordable debt certainly is. As we have learned, debt that is affordable one year might not be the next if employment circumstances, people's income or interest rates change significantly. That explains why we should be worried about the growing level of debt in Britain, which is rising at a staggering £1 million every four minutes. That means that personal debt has already risen by £10 million during the course of the debate. In 2004 alone, debt increased by £116 billion, which was the largest single increase in debt since the Bank of England was founded in 1694. According to the charity Credit Action, total personal debt in Britain has broken through the £1.1 trillion barrier. As my right hon. Friend the Member for West Dorset (Mr. Letwin) said when he was shadow Chancellor:
Charles Hendry: I understand what the Minister is saying, but we feel that there is a tendency to be complacent. We see today from the Daily Mail shocking statistics showing a sharp increase in the number of people falling behind in their debt repayments. Credit card arrears and bad debts are growing and bankruptcies and home repossessions are up by a quarter. Appeals to the consumer credit counselling service are up by 60 per cent. since last year. Although most people are managing, there is evidence that a significant and growing minority are unable to manage.
John Battle: I, too, served on the Committee that considered the previous Bill and, as the hon. Gentleman probably knows, I have taken an interest in the matter for some time. I sincerely welcome the Conservative party's approach on the Bill, but I wonder whether he will go an extra yard in the direction that I would like to push the Minister. In addition to having an unfair lending test, I would be interested in building into the Bill a responsible lending test to put an onus on those lending money to act more responsibly. At the moment they can slide away from that responsibility, which is why we see stories such as that in the Daily Mail. I do not blame the borrowers for that, but the lenders.
Charles Hendry: I hope that we can address that important matter in Committee, although we must be clear about whether such a test could be legally enforceable. Several aspects of the Bill are worrying because the court will be left to decide where boundaries lie, but there are clearly practices on which we want to clamp down, so we will need to consider in Committee how best to achieve that.
According to research carried out for the DTI and announced this week, 9 per cent. of people spend more than half their income on credit repayments. According to Credit Action, the average amount owed by every man, woman and child in the UK is approximately £18,000. Research by Datamonitor reveals that consumer borrowing for each adult in the UK through credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to more than £4,000, which is an increase of 10 per cent. in just one year and almost 50 per cent. since 2000.
Although growing debt is an international issue, it has risen faster here than elsewhere. According to the Bank of England, household debt is now 140 per cent. of aggregate income, which is above the level in the United States and most European countries. Indeed, the Bank also confirms that UK household debt is rising at 15 per cent. per year, which is more than in the United States and most European countries. Against that background, it is hardly surprising that the Bank has warned of the consequences of further borrowing by saying:
Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op):
Surely the hon. Gentleman recognises that about 80 per cent. of household debt is mortgage debt. As a
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proportion of monthly income, it amounts to only 7 per cent. under this Government, whereas it amounted to 15 per cent. under the previous Conservative Government.
Charles Hendry: The Minister made the same point. I am saying that when such debt is affordable, it is fine, but people are beginning to find it unaffordable. According to the figures announced today, there has been a 25 per cent. increase in mortgage repossessions. I was in the House with the right hon. Member for Leeds, West (John Battle) in the 1990s and was involved in homelessness issues when there was the horrific problem of repossession. Our anxiety is that although most people can afford to repay their debts, there are indications that that may not be the case for long.
We look to the Minister to reassure the House that the Government have truly understood the problems that rising debt can cause. I fear that that might be too much to hope, however, because the Government are a serial borrower. If ever there was a case for debt counselling, it is the Chancellor of the Exchequer, who spends as if there were no tomorrow, and the Government, whose top-up fees mean that hundreds of thousands of young people will start their working lives with average debts of £30,000.
Even todayI know that the Minister wants consensus, but that is not always possiblethere is a new report, showing that a quarter of parents have to borrow more because their children cannot afford to move away from home in their 20s and 30s because of their high debt. The very same Government have raided our pensions, undermined our savings culture, forced through tax rise after tax rise and taken away more and more of people's hard-earned money. It is little wonder that so many people are getting into debt to alleviate the financial difficulties that Government actions have caused.
We are all rightly concerned about some of the practices designed to encourage people to take on extra debt, especially if they cannot afford it. To pick up on the comments by the hon. Member for Hartlepool (Mr. Wright), I imagine that all of us have been offered increases in our credit card levels without the most basic checks having been made to determine whether we could afford to spend up to that amount. I have a credit card on which I typically spend about £200 a month. Gradually over the years, the company has given me a credit limit of £3,500 without checking whether I can afford to repay that amount. How can it be responsible lending to encourage people to borrow without checking that they can afford to pay back the money when the time comes? I hope that we address that in Committee.
I also hope that we can address the point made by the hon. Member for Rhondda (Chris Bryant) about credit card cheques, which is when card providers issue their customers with so-called convenience cheques that draw on their credit card. What is not made clear to customers is that spending on those cheques is usually at a higher rate of interest than that charged for normal use of the card, with a shorter interest-free period or none at all and without the protection that applies to credit card spending under section 75 of the Consumer Credit Act 1974. In many cases, the cheques are issued without the customer having requested them. Again, the Committee must address that.
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Hon. Members have spoken of their support for placing a ceiling on interest rates. Although such a move may sound superficially attractive, it would prove damaging for the consumer. Comparative research carried out for the Department of Trade and Industry across European countries and in those US states where rate caps already exist show clearly that such a measure drives down product diversity and causes lenders to withdraw from the market. That reduces choice and access for consumers. In France and Germany, for example, it drives borrowers to make greater use of illegal lenders than we do in the UK, where there are legal credit options for such borrowers.
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