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The second area I should like your Lordships to consider is how we support one of the most effective agencies we have in reducing unmanageable debt and developing the skills that help people avoid the worst traps of the credit business. I refer of course to credit unions, and I declare a further interest as a member of the District of Canterbury Credit Union and a former sponsor of a national initiative in Wales which brought together the resources of the Wales Co-operative Centre and the Anglican Church. The work of credit unions is still all too little known in most of the UK, although there are some 172 million members of credit unions worldwide, and more than a quarter of the populations of the United States, Canada and Australia are members. The potential is enormous. It is evident at the simplest level in terms of the financial burden involved in the arranging of a loan: the credit union makes no charges for arranging this, includes loan insurance at no extra cost and has no penalties for early repayment. Even
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The encouragement of locally based, entirely trustworthy, user-friendly, educationally sensitive and confidence-building methods of managing debt should be among governments highest priorities in combating the poverty traps that I have described. Many of your Lordships will be aware that a review is under way of legislation on credit unions and other co-operative ventures. It is much to be hoped that fresh legislation will bring increased flexibility by, for example, enabling credit unions to work with corporate memberssmall family businesses, religious groups active in community work, local co-operative networks and so onand giving the option to members of paying interest on continuing savings retained in the credit union, rather than receiving a dividend. The latter would have an enormously positive impact on the further development of child trust funds and similar arrangements.
Furthermore, a broadening of the definition of a common bond area to enable the services of a credit union to be shared across different localities would help these organisations to move more effectively into neighbourhoods where there is no accessible credit. All these new liberties might make the credit union movement in due course as significant a presence in our credit economy as it is elsewherebearing in mind that the pressures arising from our current crisis will not be exclusively a matter of concern for the poorest sectors of our society.
The causes of poverty are many. Setting aside the lazy but persistent mythology that blames all poor people for their poverty, the majority of people in this country who experience deprivation and disadvantage are caught in events beyond their controland this is manifestly true of children. In recognising the destructive impact of indebtedness upon such people, we may find ourselves asking harder questions about the sustainability of any economy, global or local, that depends disproportionately on endlessly spiralling credit, detached from the realities of material ownership and production. But whatever our views on these large and contentious questions, we should resolve on specific, targeted measures that will protect those currently so ill protected against the tyrannies of doorstep credit and provide the tools needed to reclaim some skill and competence in the management of money and resource, so that the ongoing destructive effects of economic privation on the lives of families can be arrested. I beg to move for Papers.
Lord Anderson of Swansea: My Lords, it is an unexpected privilege to be called to follow the most reverend PrimateI must have friends in high places.
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The most reverend Primate and I go back a long way. We often crossed swordsor was it ploughshares? on BBC Wales on matters such as the first Gulf War. Now I would do it regarding Sharia. But I have always admired him as a very godly man. His only fault is that he attended the wrong school in Swansea, like the noble Lord, Lord Griffiths of Fforestfach.
We all recognise the way in which the most reverend Primate can disturb those who need to be disturbed. It is important that he stressed that inequality is not just an economic, material and financial matterthere can be an inequality of aspiration, life chances and educationbut money obviously helps, and people are crushed if they are unable to raise their heads above worries about debts. It is very much a part of the prophetic vision of the church to look at the plight of the poorer members of our society, and that becomes increasingly difficult today.
I make but three points, rather like a sermon. Galbraith wrote of a contemporary culture of contentment in western societies, where the contentroughly two-thirds of usvote for middle-of-the-road parties, preserve our own privileged lifestyles and yield all too frequently to the temptation to pass by on the other side those who are less fortunate. Hence the need for the church to play the role of Elijah against the Ahabs in government and to rejoice when people such as the most reverend Primate are called holy troublemakers in todays society.
The second point relates to child poverty. I am most grateful to a Christian charity, CARE, for background material on taxation for this debate. Family poverty, in particular child poverty, remains a major problem, in spite of all the good work that the Government have done since 1997. In passing, I ask my noble friend the Minister why the publication of figures on child poverty, which we expected on 2 May, has been deferred until an unspecified date in June, as the figures would have provided a helpful background to this debate.
In any event, child poverty numbers remain uncomfortably and unacceptably high and there is an urgent taskurgency was a theme of the most reverend Primates speechto look again at the way in which the tax credit system impacts on families. Most attention has been focused on reducing poverty among children in lone-parent families, where the parent often does not or cannot work, yet most children in poverty live in two-parent families; in fact, 60 per cent of children in poverty on the before-housing-cost basis live in coupled families and in most two-parent families the parents are in work. Hence, tax credits should be redesigned to give more help to children in two-parent families. I commend the CARE pamphlet by Draper and Beighton, Taxation of Married Families, which was published in January this year.
It is argued that current policies often have the perverse effect of encouraging parents to live apart, as
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Finally on the major theme covered by the most reverend Primate, I shall talk about credit. It is easy for us in our comfortable position in this House to talk in general terms and not to look at individual problems. Perhaps one of the advantages of those in the other place is that in regular surgeries they are able to meet the victims of the credit crisis, which we are often not so easily able to do. It is true that there has been an explosion in recent years in credit indebtedness, which is likely to increase as a result of the current problems. We stand on the verge of a sustained slowdown, which puts pressure on household budgets. More families are likely to exercise their credit facilities and serious overindebtedness can result. The figures on total UK personal debt, total consumer credit lending, average household debt, average outstanding mortgages and interest repayments all speak for themselves. Obviously, the causes of indebtedness in individuals will vary enormously, but often the person with excessive debt is in no way to blame for rash spending but has experienced unfortunate changes in circumstances beyond his or her control, such as loss of a job, serious illness or breakdown of a relationship.
As the most reverend Primate underlined, a frequent reason for indebtedness is poor personal financial management by borrowers. In this field, Credit Action, a Christian-based charity, produces a range of materials, including a mobile phone budgeting tool, the Moneybasics Spendometer. It also runs training courses and produces a set of guides to help with money management. These guides include Thinking About Money, which is,
A key driver of our overindebtedness is irresponsible lending by banks and building societies, such as the 125 per cent mortgages or home loans of up to six times the borrowers income, although in the current crisis these are obviously no longer available. The Banking Code, which was updated last month, is a good step but is voluntary and thus not enforceable by
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Of course credit gives many people a degree of flexibility and a lifestyle that they would not otherwise enjoy, but it can easily lead to overindebtedness. The Government, financial service firms and the third sector need to work together to increase levels of financial literacy. Further, the Government should press the lending institutions, which bombard us with these offers of credit, to help those who are the victims of their own enthusiasm, perhaps by a percentage levy on turnover. Equally, the Government should give greater resources to free, independent debt advice charities, such as the Consumer Credit Counselling Service, the National Debtline and Citizens Advice, all of which work effectively with the victims and those who suffer from serious indebtednessthose victims whom the most reverend Primate described so well and so graphically.
Baroness O'Cathain: My Lords, I am sure that all noble Lords are as grateful as I am to the most reverend Primate both for tabling the Motion and for speaking so passionately on the impact on the family of economic inequality, credit and indebtedness. He certainly gave us a great deal of food for thought.
It is difficult for me to speak from personal experience about the impact on the family of economic inequality, credit and indebtedness because I do not really have any relevant and current family experience. My experience of growing up in a family in the post-World War II yearsI suggest that my experience was similar to the experience of most at the timewas of a determination never to get into debt. This message certainly impacted on me and my siblings. Whenever we wanted something, we had to save our pennies for itand I mean pennies.
The post-World War II years were years when the sun shone, there was never a break-up of family among any of my friends at school, we rode to school on the bus, we were not scared and we were able to walk on the roads on our own with impunity. There was no TV and we had absolutely no idea of what was out there to desire in terms of gizmos, Barbie dolls, computer games or trainers. Our greatest wish was for the sweet rationing to endoh, the delights of my first Mars bar! This sounds ridiculously frivolous but drilled into us was the instruction, If you want it, you have to save for it. It was not that difficult because we were not constantly bombarded by messages to spend, spend, spend. Nowadays, no one can escape from them. In our homes, we get constant messages from TV, radio, our computers and newspapers. We venture outside our front doors, and buses, tubes and hoardings all proclaim the message that unless we have this brand of trainers or the latest
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Added to that, the emphasis on savings has vanishednot only within the family context but in national terms. Why do we not attach any importance to the economic indicator of the saving ratios as a proportion of national income? It used to be one of the most important figures in national accountsone that was discussed at every Budget. That is no longer the case. When I studied economics a very long time ago, the savings ratio used to be somewhere between 15 per cent in a good year and 11 or 12 per cent in a bad year. In 1997, the savings ratio in UK accounts was 9.5 per cent but in 2005 it was 5.3 per cent. Saving is not encouraged; consumption is.
For all the reasons that have been discussed in this House on many occasions, there is now a greater incidence of depression in our population than in the past. The most appalling modern slogan, used as a cure-all for depression when one is feeling low or fed up, is retail therapy. The rot probably set in with a very enticing advertisement in the late 1970s. I am sure that those of us who are old enough will remember itI know that it won all sorts of awards. I refer to the Access credit card advertisement which said, Take the waiting out of wanting. As an aside, can anyone enlighten me as to whether an advertising award has ever been won by a savings or pensions product advertisement? Where is our sense of responsibility as a nation when we fail to encourage thrift?
One may well ask what that has to do with the impact of economic inequality, credit and indebtedness on the family. I suggest a great deal. How do we tackle it? Before I come to some proposals and ask the Minister some questions, I wish to quote just a few statistics as justification for the line that I intend to develop. In 1997, the average financial liability per household in this country was £24, 650. In 2006, this had risen to £55,073an increase of 123 per cent. Of course, these figures include mortgages but in 1997 unsecured debt per person was £1,943 and in 2006 it had risen to £4,186an increase of 115 per cent. Thus, investment in housing is not the sole reason why so many get into debt, although of course it is a major factor. The figures that I have just quoted reveal a serious neglect of savingsin fact, a reduction of 44 per cent in the savings ratio. I shall give one final set of most disturbing statistics. In 1998, the number of individuals becoming insolvent totalled 24,549. In 2006, that figure had leapt to over 60,000.
I truly believe that ignorance of all matters financial, including budgeting and the cumulative effect of credit card debt, is to a very large extent responsible for this. The combination of constant encouragement to buy, buy, buy or spend, spend, spend, plus a worryingly low level of financial literacy, is leading to poverty and the poverty trap, from which it is exceedingly difficult to escape, as we have heard. For example, I wonder
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On several previous occasions, I have brought the attention of this House to the appallingly low level of financial literacy in this country. The FSA, to be absolutely fairI have been fairly critical of it over the Northern Rock issuehas been concerned about this for a very long time. Its baseline survey in 2006 showed that 70 per cent of people had made no provision to cover an unexpected drop in income arising from the temporary loss of a job, illness or other change in circumstances. In addition, 81 per cent of pre-retired people recognised that the state pension was unlikely to provide them with the standard of living they had hoped for in retirement, but, even being thus aware, more than a third of them were not making any additional pension provision. We should remember that pensions were very much in the eye of the storm in 2006. In that year, more than 1.5 million people admitted that they were falling behind with bills or credit commitments, and one-third of them said that they had real financial problems. That was very difficult to admit but it was a fact. A third of the people who have general insurance bought it without comparing it with even one other product on the market. Would they do that when buying a car, shoes or a holiday? Finally, 40 per cent of people who own an equity ISA were not aware that it fluctuates with stock market performance, whereas 15 per cent of those buying a cash ISA thought that its value did fluctuate with stock market performance. We are not talking about the people whom the most reverend Primate has been dealing withthose at the bottom of the heap. It is endemic in our society; it starts at the top and goes right down to the bottom.
I have drawn attention to these examples to show that poor financial literacy is a deep-seated problem in this country and that it has serious implications for all families and at all levels of society. What is the solution? I believe that one answer is likely to require years of systemic education and cultural change, and it certainly includes putting less onus on self-identity linked to consumerism. I am so glad that the most reverend Primate has majored on that. A plain language, non-threatening thought process might go a long way in helping most people, most of the time, to grasp the important fundamentals of financial literacy.
I was recently shown a five-point plan that could be used. The first item was: do not expect something for nothing; if it looks too good to be true, it almost certainly is. Secondly, recognise risks: what happens when you lose your job or the house burns down? Thirdly, understand the choices available to cover short-term or long-term additional income requirements. Fourthly, budget household expenditure both for the regular and necessary type of expenditure and for discretionary expenditure. Finally, when entering into any financial commitment, be completely aware of your rights and responsibilities. Noble Lords may smile and think that this is all too simplistic, too basic
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A consistent national approach to building financial skills along those lines might be a powerful tool if it was combined with coaching for teachers and others. There could be a massive opportunity here for many of the large number of people who have retired early from the financial and commercial sectors to mentor others within their local community. Perhaps that idea would appeal to the most reverend Primate the Archbishop. The proposal could be facilitated by a local church community, which would be another use for the premises. It could be a worthwhile additional interest for those with time on their hands who truly want to follow the second great commandmentto love thy neighbourby practical means.
Inevitably, we look to the Government for ideas and a response. That is not buck-passing. Surely it is in the interests of the Government and the country as a whole that we increase financial literacy. I have no idea whether an international comparison of financial literacy is available or where we would be likely to be placed in an international league table; the issue is too serious and important to waste time looking for comparisons which politicians of all parties would selectively use to score points. We need a united sense of purpose to attack the problem and to attack it now.
Taking advantage of the excellent initiative of this debate, I should like to ask the Minister some questions of which I have given him notice. I believe that this is a cross-party and truly important House of Lords issue. First, is it true that the Government have proposed that financial capability should be a mandatory statutory requirement for the 2008-09 schools curriculum? If so, has the proposal been dropped? And if so, why?
I commend the Government on supporting enterprise education in schools. Many children have benefited hugely from this and it is a sure-fire way of increasing financial literacy. The following questions are directly related to the programme. What proportion of the budget given to schools as earmarked for enterprise education has actually been spent on enterprise education? Has it just gone into the pot, and could it end up being spent on building or on equipment for science laboratories and so on? How much duplication exists in the programmes for enterprise education produced by different providers?
The most reverend Primate the Archbishop of Canterbury should be congratulated most warmly and seriously on initiating this debate. It is a most important issue, one that affects everyone in our country. I hope that one result from the debate will be that people are galvanised into thinking about the issue and searching for solutions to alleviate poverty. This issue needs wholehearted commitment from all of us. It is an issue that transcends the political stance adopted by the different parties and I truly hope that this will be the beginning of something really worth while.
Baroness Sharp of Guildford: My Lords, it is a great pleasure to join others in congratulating the most reverend Primate on introducing an extremely timely
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