Sunday, February 03, 2008

Crunching Credit - why is Vince Cable still a voice crying in the wilderness?

Vince Cable has been warning for many years about spiralling debt in this country. But, rather like Noah, his words have, until now, fallen on stony ground. The stoniest ground it seems to me being in parts of the financial services industry, closely followed by the opposition parties. Now we are all paying the price for this palpable neglect, but none more so than those who face the threat of the repossession of their homes.

With my work hat on I addressed a very well attended conference on debt in Norwich on Friday. I shared a platform with, amongst others, Charles Clarke and our own Norman Lamb. Whilst it is encouraging that concern about over indebtedness is shared by all political parties, there are clearly political decisions which could have and should have been taken earlier.

At Federal Conference in 2005, Vince said "The economy has become seriously unbalanced. Its growth has not been driven by investment or by overcoming Britain's long-standing weaknesses in investment and productivity, particularly skills. Instead, there has been a binge of debt-financed consumer spending. British families have acquired unprecedented levels of personal debt, in relation to their income. I warned, over three years ago, about the dangers of unsustainable personal debt. It is now much worse. I fear that the rising personal bankruptcies and repossessions are the first signs of bigger problems to come and personal debt - Gordon Brown's legacy to millions of Britain's families - will hang like a millstone around the neck of the British people for years to come."

The tragedy is that this is people's lives and futures we are talking about and I have a particular concern for our young people. They are growing up in a very different landscape from that a generation ago. I know I sound like a granny (well I am one!) but, I remember the days when HP was a dirty word, if you wanted something you saved for it, as a teenager the challenge was to look as if you had spent as little as possible on your clothes, and if they came from Oxfam, or you had tie-dyed your own t-shirt.......well that was the height of cool! Now it is the £100+ Nike trainers that give you street cred. In my day..........I got a grant (!) I occupied the admin block to protest against overseas student fees, never imagining that had I wanted to study now I would have had to borrow huge amounts in order to afford to do so. When I started work final salary pension schemes were the norm. I bought my first house 23 years ago for £16,000 - the same house now would be worth about 10 times that, but if I was earning commensurately now, I would be on around £140,000 a year! In fact, the job I had then is now paid at about £24,000 a year.

Last week the FSA issued a stark warning about the potential for 1 million home repossessions in the next 18 months. This is truly shocking and taking place in a choppy sea where the loan consolidation and debt management sharks are circling, often resulting in people getting into more debt. Turn on commercial radio or TV any day of the week and these firms will be targeting the most vulnerable. I was surprised when working at home on Thursday to receive two automated calls, one offering me a "free" cruise in the Caribbean (I'm used to those), the other asking if I was in debt and needed help. Sadly, excellent debt advice services such as those offered by Citizen's Advice and the Consumer Credit Counselling Service, don't have the resources to advertise their free services.

So now we see the closing of the stable gate approach - Egg withdrawing credit cards and credit allegedly becoming harder to obtain. But, I have no doubt we will still have the situation which recently happened to a friend of mine, receiving two letters from her bank on the same day. One threatening legal action because she hadn't repaid a loan, the other offering her further credit!

The Tories, not known for their love of regulation, shout loudly but offer not a jot of an idea of how to tackle the problem. So, what should we be doing? Firstly, get the regulation right; secondly legislate for an upper limit on interest charges(some doorstep lenders charge in excess of 400% APR); thirdly explore the scheme suggested by Vince of a shared ownership solution for those in danger of losing their homes through repossession, fourthly (yes it's that old chestnut) taking up Nick Clegg's call for risky radicalism..........revisit Land Value Tax.

There are other measures which will contribute, the Thoreson Review will report later this year on the establishment of a Generic Financial Advice service. Also the inclusion of Financial Literacy on the school curriculum from 2008, although this should be statutory. The work the FSA are doing through the Financial Capability Strategy is already having an impact, but that is long term, it is not just about people having the right information and skills, it is also about behaviour and attitudes, as no doubt those who work on the Teenage Pregnancy Strategy are well aware, this takes time!

This will be a miserable year for many of our fellow citizens, we must ensure that as a party our voice is heard above the din and that Vince Cable is seen as the person most able to manage our economy, maybe I am biased, but I have absolutely no confidence in Alistair Darling and the thought of George Osborne holding the purse strings makes me want to go and hide behind the sofa!

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