The chairs of two powerful parliamentary committees have urged the government to set up an independent public inquiry into the £200bn of debt amassed by households.
The call by Rachel Reeves, the Labour chair of the business select committee, and Frank Field, the Labour head of the work and pensions select committee, comes as the Conservative-led Treasury select committee plans to hold meetings around the country to examine the impact of debt on individuals and households.
“Debt is a huge emotional burden for people,” said Nicky Morgan, the Conservative MP who chairs the Treasury select committee. She added that “unstable personal finances” often emerged as problems raised by her constituents in Loughborough.
Field said people in his Birkenhead constituency on the Wirral were being pushed into destitution by the actions of loan sharks and finance companies that heaped extra pain on low income households with sky-high interest charges.
He said: “We need a commission to assess the current situation. There are so many moving parts that a proper investigation goes beyond the remit of any single committee.”
According to the Money Advice Service, there are now 8.3 million people in the UK with problem debts while the government’s official economic forecaster, the Office for Budget Responsibility, has predicted that unsecured consumer debt – which includes loans, credit cards, overdrafts and car financing – will soar as a proportion of national income over the next four years back above its previous peak in 2007.
“It is the government’s responsibility to understand the extent of the issue and who is the worst affected,” she said.
“When you have people right up the income scale being told by the banks not to worry that they can’t afford the price of a car, just borrow the money anyway,” Reeves said.
Andrew Bailey, the chief executive of the Financial Conduct Authority, on Monday called on the government to help craft a sustainable solution to enable vulnerable borrowers to obtain finance.
Reeves and Field said they were concerned that there were large gaps in the remits of the regulators given responsibility for monitoring Britain’s debts.
Neither the Bank of England, which monitors the banking sector, the FCA nor the OBR has an overarching responsibility to report to government about the UK’s debt position.
Reeves said the financial services industry needed to be more transparent about the level of indebtedness and subprime lending.
Field said regulators need to be more explicit about the extent of the damage to households and the economy from a shock that could be caused by an increase in unemployment or increased interest rates.
The detail of the Treasury select committee inquiry is still being worked out but Morgan said her ambition was take evidence “not just sitting in London”.
When she was standing to become chair of the committee after the election, Morgan had flagged the issue of household debt as one of the areas she felt needed closer examination. She wanted to look at “what it is about our households that accumulate debt”.
The aim was to “add something intelligent to the policy debate”, said Morgan.
A Treasury spokeswoman said the government was focused on supporting the growth of secure and better-paid jobs as the route out of debt. The increase in full-time jobs in the past two years and a higher minimum wage meant that fewer people were coping with low and erratic wages. She added that tighter rules on the financial services industry provided consumers with greater protection than before the 2008 crash.
She said: “We have fundamentally reformed the consumer credit market so that the Financial Conduct Authority now [has] robust powers to help consumers, such as protecting 760,0000 people with the new cap on payday loans. A record number of people are in work and we are helping them keep more of what they earn by cutting taxes and raising the ‘national living wage’.”
John McDonnell, the shadow chancellor, said: “Labour is deeply worried by the concerns raised by the Bank of England over the high levels of personal debt.”
A senior Bank of England official, Alex Brazier, recently told banks, credit card companies and car loan providers that they risked fresh action against reckless lending and warned of a looming “spiral of complacency” about mounting consumer debt. He added: “Household debt – like most things that are good in moderation – can be dangerous in excess.”
McDonnell said: “We believe this is an area where there is a need for government intervention, and we will be bring forward policy proposals on this matter.
“The last seven years has seen the Tories fail to tackle the fall in wages, which has also witnessed a surge in unsecured lending; as many families have been forced into debt in order to just make ends meet.”
Vince Cable, the Liberal Democrat leader, also supported calls for a public inquiry, adding that it would prove futile if it ignores “an economically destructive extreme Brexit that will push the indebted over the edge”.
Cable added: “The government must also immediately implement its manifesto commitment to introduce a ‘breathing space’ for people with problematic debt, conveniently forgotten since the election but now more urgent than ever.”
Read more at theguardian.com
