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Posted - 06 July 2007 : 10:14:55
As rates rise, Tories warn of spiralling personal debt
A worrying picture of spiralling personal debt which has trebled over the past 30 years to £1.38 trillion will be revealed in a report to be released next week.
The Conservative social justice policy group, chaired by the former Tory leader Iain Duncan Smith, will warn that personal debts have reached the equivalent of an average £54,452 per household and call for radical steps to curb high street lending. A survey by Mr Duncan Smith's review team also found up to nine million Britons confessed to having a serious debt problem.
The main report, to be unveiled on Tuesday by David Cameron, will warn that average household debts are twice the level of continental Europe and demand that credit card companies and banks are banned from automatically raising credit limits. It will also call for action to encourage the growth of local credit unions as part of action to reduce reliance on expensive doorstep lenders.
Details of the report emerged as the Bank of England increased interest rates for the fifth time in less than a year. The cost of borrowing rose from 5.5 per cent to 5.75 per cent, a level not seen since March 2001, fuelling fears that some families may face financial problems.
Members of the party's serious personal debt working group are understood to have been shocked by the widespread rise in borrowing to pay for holidays, weddings and other spending.
They will warn that debt is a problem for millions of people and caution that sharp increases in borrowing - particularly unsecured debt - can lead people into a spiral of decline.
Their report is highly critical of the increasingly easy access to unsecured borrowing which has helped increase the ratio of household debt to income from 50 per cent in the 1970s to about 140 per cent today.
The report said: "The working group feels very strongly that mainstream banking is an area which has escaped formal regulation for too long and that given recent revelations of "unfair" bank charges, it is an appropriate time to alter this situation."
A string of proposals to tackle the problem include plans for a new "bank customers' charter" to be enshrined in law to stop firms encouraging borrowing by automatically increasing credit limits and sending "credit card cheques".
It would also force lenders to be more open over loan penalty charges and the way headline interest rates are calculated.
The report will propose action to force doorstep lenders to be more open about interest rates and charges, amid warnings that low-income families can be charged interest rates of up to 150 per cent on short-term loans.
The report will urge action to rebuild community support for vulnerable people by promoting marriage, support for families and action to encourage the voluntary sector. It will call for early intervention to target children at risk of exclusion, drug addicts and young people looking for work. But it rules out action to cap interest rates, saying it could drive low-income families to illegal lenders.
Source: independent.co.uk
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