Peter Black and South Wales West Liberal Democrats

Personal Debt

The Welsh Liberal Democrats are tabling this debate at a time when personal debt is spiralling out of control, and all across the country there are fears about the stability of our economy.

Even the government has put us in in debt! In the last few months the Northern Rock crisis has seen every family in the country lending the bank £2,000 in order to secure its future. That crisis was brought about as a reaction to the 'sub-prime crisis' that developed in America, where banks were consciously lending money to high risk customers who had no chance of being able to pay the money back As we will see that is happening here too.

Personal debt in the UK has now exceeded £1.3 trillion, 5 billion pounds more than the value of the entire economy. Over the last year it increased by 10.2 %. In November alone, lending was a massive £223 billion. The scale of these figures is phenomenal and, for most people, it is difficult to grasp exactly what they mean. But the fact that personal debt has now exceeded GDP - i.e. personal debt is worth more than the entire economy - should set alarm bells ringing Credit card debt alone is £126bn.

The banks have a huge responsibility in this area, and some are not living up to it. Because they make far more money from borrowers than from savers and investors, it's clearly in their interest to get young people to borrow as soon as they can.

In 2001, Labour declared that Britain was now "more prosperous, more equal and more respected", but the simple fact is that in 2008 this is clearly not the case. The gap between the rich and the poor is more significant since Labour came to power in 1997, and crushing levels of personal debt, expanding student loans and obscene house prices are only making a bad situation a lot worse..

Not only are more people in higher debt than ever before (which is not necessarily a problem if well managed), but experts say that more people are in day-to-day financial difficulty than before. In a recent survey 2.5 million people claimed to be 'very concerned' about their personal finances, and rightly so. Datamonitor, the independent financial analyst, warned this week that the total number of Britons credit blacklisted by 2011 will jump by 20 per cent to 8.6 million.

The average first time buyer's income in 2006 was £30,841 in Wales, compared to the average house price of £168,300, making the average house bought by a first time buyer 5.5 times their average wage. According to other estimates, house prices can be up to 6.28 times average income.

If you consider that banks traditionally have lent around 3 or 3½ times a person's income for a mortgage, then this situation can only lead to one of two outcomes: either banks lend irresponsible amounts of money - five or six times a person's income; or people can't get onto the housing ladder at all. In a society where we promote the idea of home ownership, this has generally led to people borrowing more money than they can sensibly afford.

What is worse is the growth of loan companies seeking to make money out of people's debt problems. In some cases they can help but in others you have to wonder about the wisdom of some of the deals on offer. Take the case of Picture Financial Service whose website offers loans of 'up to 125% of the value of your home, something that traditional lenders won't consider', and for good reason.

What is the Government's response to such offers? Well, they provide personal endorsements. The Picture Financial Services website contains a prominent testimonial from the Secretary of State for Work and Pensions praising the company for its success.

Questions must be asked as to whether it is appropriate for a government minister to offer such testimonials, particularly one who is responsible for the whole apparatus of state support to the less-well off in our society. It seems that the Government's response to our growing personal debt burden is to shrug their shoulders and turn the other way.

In defence of Peter Hain, it is likely that his comments have been taken out of context and misused, but that did not stop him asking the Chief Executive of Picture Loans for a donation, nor is there any evidence that he has asked for the quotation to be removed from the website. We would do well to heed the warning in a press release put out by Mr. Hain's Work and Pensions Department on 9th January telling us that "more than half of people in the UK (55 per cent) spend more than they can afford and are struggling."

We would like to see the Welsh Government focus its attention on three areas. Firstly by working with bodies such as the Citizens' Advice Bureau, learning providers and local authorities, we would like to see the government fund and promote best practise in increasing financial literacy. We would like to see financial literacy workshops run through accessible community groups such as pensioner's clubs and parents groups all with the main objective of informing people - especially the most vulnerable - about sound financial management and the risks of debt. That needs to be replicated in our schools and colleges as well.

It would also be useful if the Welsh Government could help CABs overcome their many funding issues so as to provide this service. Many of them are struggling to provide a full advice service because of their reliance on hard-pressed local Councils for money. The funding levels are uneven across Wales and as a result access to advice is variable. That advice service is crucial for many people and the situation needs to be addressed at a Government level. Perhaps the Minister will outline what he can do to help in his response.

Secondly, we would like to see the funding of independent advice centres to supply those who need it with financial health checks, and we hope that this is something that the government will take this on board.

Finally, we would like to see more help for Credit Unions. The Government currently pledges £800,000 to the Welsh Credit Unions per year yet this would lift only 26 couples seeking help from the Consumer Credit Counselling Service out of debt. The commitment to helping those in debt and preventing those at risk of becoming financially excluded needs to be far reaching and needs to start at a young age.

I urge the government to revisit its programmes on these issues and to look again at their effectiveness.

Thank you.