Cicero Policy Briefer

Issue 8, January 2007

Is Britain really breaking down?

By Laura Chisholm

The Conservative Party’s report “Breakdown Britain”, published in December, pinpoints indebtedness as one of five ‘pathways to poverty’ in the UK today. This places debt alongside family breakdown, educational failure, economic dependence and addiction. They quote a barrage of evidence to support their central assertion that there is “excessive complacency about the impact of debt, particularly for low-income households”.

The report concludes that debt is right at the heart of the problems facing Britain today, causing 10.7 million people to suffer relationship problems. Debt among low-income families is a cause rather than a symptom of social breakdown and, according to a recent YouGov poll, “the most serious social problem facing the UK”.

Is this anything new? Certainly debt, and especially debt amongst the poor, has been central to the agenda of the Treasury Select Committee, and thus the Treasury, FSA, financial services industry and consumer groups for a year or more.

The report focuses on the three million people who are excluded by mainstream lenders and therefore resort to doorstep lenders or loan sharks. These are the people who pay interest charges that frequently reach between 100 per cent and 400 per cent.

Though the banks are found not guilty of ‘explicitly’ targeting vulnerable people, the culprits identified are the usual suspects: complicated interest rates and charges, a lack of access to debt and savings for those on low incomes, the need for better data sharing and better regulation of the advertising of credit. Overall, the report would like to see “greater care in lending practices, particularly for low income families”.

What next?

The Treasury is due to publish a 10-year strategy into financial inclusion and capability. This is likely to reflect the recommendations in the Treasury Select Committee’s report published in November.

As far as the Conservatives go, the policy group responsible for ‘Breakdown Britain’ was set up by David Cameron to look at issues affecting social justice. Chaired by former leader Iain Duncan Smith MP, the group will report in the summer and its recommendations are expected to form the basis of the Conservative Party’s policies to tackle poverty.

What the report may have successfully anticipated is the way that in the future debt will be addressed as a pillar of social policy, rather than an unfortunate by-product of credit liberalisation that can be solved by tinkering with FSA regulation. As Treasury Minister Ed Balls MP said in October: “Financial capability is about more than just understanding financial services. It provides essential skills for employment, and supports the advance of a wider culture of enterprise and ambition.”1

1. Speech at the Financial Capability Conference, 18 October 2006.

Laura Chisholm can be contacted on +44 (0)20 7665 9536 or click here to email.

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