Brown must act to tackle Londoners mounting debt - Teather

12.30.59pm BST (GMT +0100) Fri 29th Jul 2005

Sarah Teather MP has laid out the Liberal Democrats action plan that would tackle Londoners mounting debt

Liberal Democrat Spokesperson for London Sarah Teather MP has today revealed figures that show Londoners unsecured debt has almost doubled since Labour came to power in 1997.

According to figures unveiled by Sarah Teather MP Londoners now on average have £6,730 of unsecured debt against their name, up from £3,440 in 1997.

Liberal Democrat spokesperson for London Sarah Teather MP said:

"The number of Londoners with spiralling personal debt is deeply concerning. The Chancellor is standing idly by as Londoners sit on a mountain of unsecured debt. He cannot continue to be complacent about this ever-growing problem.

"A down turn in the economy would spell a financial crisis for many Londoners. The Government must urgently act to improve economic stability so that debt levels do not completely engulf Londoners. There must be mechanisms put in place so that people have a clear idea of exactly how much they have borrowed.

"Safety nets should also be installed to safeguard against a housing market collapse where many could find themselves unable to pay their mortgages."

Liberal Democrat ten point action plan for tackling personal debt:

Economic Stability

House prices should be properly reflected in the official measure of inflation. At present the Consumer Price Index does not give proper weight to house prices. This means that interest rates are too low in a housing boom and too high in a period of decline. Eurostat is currently considering new measures with EU governments.

Consumer Protection

Safety Nets

The Financial Service Authority and the competition authorities should investigate the malfunctioning of the market for mortgage payment protection insurance and there should be greater transparency in the market. At present only 22.5% of mortgages are protected (down from 23.7% in 2003) though 60% have some form of protection. But in a serious downturn large numbers do not have any or adequate protection to avoid default. Many policies are very expensive and many have exclusions in the small print, which limit their value.

Competition authorities must clamp down on hidden charges in credit and store cards. Despite some recent initiatives by the Office of Fair Trading to require information boxes the charging arrangements remain opaque and extremely expensive. (and highly profitable for the banks) Standardised examples should be used for comparison between products.

Guidelines are required by the Financial Services Authority over non-income verified mortgages. There is a legitimate role for self-certification to provide mortgages for the self-employed. But the recent growth in unverified mortgages suggest an eagerness to promote competitive lending. It is a crime to overestimate income for mortgage purposes; the lenders have responsibilities here as well as borrowers.

Greater debt information is necessary to prevent irresponsible lending and borrowing. There is no justification for continued government secrecy over student debt. Approximately 60% of debt data is now pooled but a significant part, including student debt, is not. While there needs to be consent from indebted students the government should be working towards a pooling of data to prevent extreme debt situations arising.

Rapid implementation of the Consumer Credit Bill will strengthen controls of loan sharking and stop unacceptable practices such as penalties for early repayment. The Bill makes modest improvements in the current legislation but is largely confined to abuses in the sub-prime market.

The government's Social Fund should be more flexible for more emergency, short term, repayable, credits to low income families in the event of an economic downturn and debt servicing problems.

Increased Financial Awareness and Education

The Financial regulator (FSA) should ensure that credit promotion and advertising has appropriate 'health warnings'. At present there are 'health warnings' (perhaps excessively detailed) for the sale of investment products and savings but none on debt promotion. This imbalance aggravates the current bias against household savings and in favour of borrowing.

The government should be actively working with the financial services industry to achieve a national role out of independent advice centres, providing financial health checks. It is now very difficult for consumers to obtain independent financial advice following the new 'polarisation' rules. The CAB provides financial advice but usually for those already in debt difficulty. A network which provides genuinely independent advice would be in the interests of the industry - helping to restore battered confidence - which should be willing to finance it collectively, also ensuring advice of a high professional standard. Clients would be offered a fixed period of free advice and then after charged a standard fee.

Financial education and awareness should be integrated into the national curriculum within maths and citizenship. Modest pilot studies have already been carried out to establish good practice.