18:DEBT ON OUR DOORSTEP
PERSONAL DEBT SET TO TOP£1TRILLION IN UK
On 29th October, the Bank of England revealed that personal debt in the UK has soared to a record £905.8billion, and is likely to soon break the £1trillion mark - that is, one million, million - almost equivalent to Britain's gross domestic product.
An average of more than £15,100 is owed by every man, woman and child. The average household is around £37,750 in debt to mortgages, credit cards and personal loans. Mortgage lending has hit new heights rising to a record £737.4billion.
The beneficiaries of the debt boom are banks and other lending institutions who are reaping huge profits.
Some commentators are concerned that people are leaving themselves dangerously exposed to even small rises in interest rates, and that much of the debt is being "squandered on luxuries" rather than re-invested for the future in, for example, home improvements, retirement funds, or children's education. (The Daily Mail, 30-10-03)
Meanwhile, there are now 1,500 different credit cards available in the UK and the total amount of credit card lending has doubled in the past four years, according to a report from the Credit Services Association, which represents the UK's debt collection "industry".
The aggressive promotion of debt is often behind this rise, andVince Cable MP suggests that credit card mailshots should come with a government warning, "This product can seriously damage your wealth." The typical household falling into difficulty owes £25,000, spread across an average of 15 different lenders, compared with £10,000 three years ago. (The Guardian, 14-10-03)
The poorest households are increasingly turning to doorstep lenders charging high levels of interest. The campaign group Debt on our Doorstep said that rates can be as high as 177% and that almost anyone is able to set up as a lender provided they have an easily obtainable consumer credit licence.
Amazingly, the UK is virtually alone amongst developed economies in not having any form of legal cap on extortionate interest rates, Debt on our Doorstep is a coalition of organisations including OXFAM, Church Action on Poverty, the National Housing Federation, and the New Economics Foundation.
It demands Government action to include tough new laws against extortionate and irresponsible credit lending.
The introduction of an interest rate cap would be gradually introduced to prevent complete market disruption and would be based on interest, loan duration and repayment method, to allow for different product options.
Also it calls for reform and/or replacement of the Government's Social Fund to ensure adequate access to grants and loans; a £250m boost to promote low-interest credit unions and other community finance initiatives in order to provide affordable alternative sources of credit; promotion of socially responsible service provision by high street banks and; methods of debt recovery to become more effective, equitable and just, by taking proper account of debtors'circumstances.
There is also a concern that the £3 billion Home Credit market is dominated by 4 companies who between them control 79% of the market.
If the government helped other organisations, like credit unions, become more actively involved in this market place then the companies who presently dominate would be forced to reform their practices and cut their charges.
— from Prosperity, October 2003