Financial Inequality

My Lords, the issue of financial inequality is an important challenge confronting the country today and I pay tribute to the noble and right reverend Lord, Lord Harries of Pentregarth, for securing today’s debate. Indeed, given the dangers that confront our economy, the focus should be shifted strongly towards those who are the most vulnerable.One of the biggest concerns in this area should be debt, about which I shall talk initially. The problem of debt divides people into those who have and those who have not. It is another dimension in our discussion today. In response to a recent Parliamentary Question in another place, total personal debt was estimated at £1.4 trillion in January 2008. Further, it was revealed that the average personal debt had increased from £16,000 in 2002 to £23,000 in 2006. That is a large increase and for many it is a serious issue. Total household financial liabilities have increased every year since 1997, rising from approximately £586 billion in 1997 to £1,370 billion in 2006. When one allows for loans secured on dwellings as a percentage of households’ gross disposable income, the figure has increased from 28 per cent in 1997 to 39 per cent in 2006.

Citizens Advice has seen increasing numbers of mortgage and secured loan arrears problems in the past two years. Home owners in arrears receive little help from benefits, insurance or their lenders. Poor lending and arrears collection practices have made problems much worse for many borrowers. In the past year, Citizens Advice reports having to deal with 57,000 problems of mortgage and secured loan arrears—an 11 per cent increase on the previous year.

Safety nets are failing. The take-up of mortgage payment protection insurance has declined and the Government’s own income support for mortgage interest payments scheme is failing to keep people out of serious arrears problems because of the limited help that the scheme provides. Sustainable home ownership is a challenge for many low-income households. Better co-ordination of government policy and proactive regulation of bad businesses are needed to prevent these borrowers from being set up to fail.

Earlier this month, the final report of the Thoresen Review of Generic Financial Advice was published. It sets out a blueprint for a national money guidance service to help people to make better decisions about money issues. The conclusions include the provision of money guidance focused on giving people information on budgeting, saving and borrowing protection, retirement planning, tax and welfare benefits, and jargon busting. The report recommends a United Kingdom-wide approach to money guidance to be delivered using a multichannel approach—telephone, face-to-face and web-based provision. Those improvements would be paid for by splitting the costs equally between the Government and the financial services industry. I am sure that noble Lords would be most grateful if the Minister would provide some indication of the Government’s response to these proposals.

I believe that we need to do more to tackle the problems of financial difficulties and debt issues. There is a role for the Government, civil society, financial institutions and businesses to take responsibility jointly and to work together to find and implement the solutions. I would like the Financial Services Authority to exercise greater scrutiny and control over financial institutions where moral hazard or signs of bad practices are indicated. Financial institutions should follow responsible lending practices.

The Government should take steps to improve the financial education that is delivered in our secondary schools. There should be a clampdown on store cards. Perhaps we should consider a seven-day cooling-off period, so that if a customer signs up for a store card or other revolving credit facilities at the point of sale, this credit cannot be used for seven days. Equally, much clearer information for credit card users should be provided. For example, credit card adverts, application forms and statements should include illustrative scenarios that explain exactly how much credit will cost if only minimum repayments are made every month.

Finally, I should like to add that one of the key causes of financial inequality is that many people are trapped into poverty by the very welfare system that was designed to help them. There is reliance on a welfare culture. It is imperative that we support initiatives and polices that give encouragement and incentives to people to look for work or to go on training schemes. There should be a focused welfare-to-work programme. In addition to earning a wage, people will get satisfaction and self-esteem from working. Unemployment and poverty are contributory factors in the breakdown of families. My party is taking this matter seriously and we have set out our proposals on it. In view of the constraint of time, I am not able to discuss these fully.

Updated: 27/08/2009 — 3:48 PM