Trillion Pound Debt

Written by Vincent Cable MP and published in Online Exclusive on Mon 2nd Aug 2004

This week I participated in a publicity event at the Twickenham Citizens Advice Bureau to highlight the issue of household debt. Charles Kennedy joined me. But, party politics apart, debt is a growing social problem.

Most young families borrow heavily to buy a house and set up a home as mine did when I first came to Twickenham thirty years ago. Indeed, they have no alternative. Most people borrow sensibly and cope with debt. And, in any event, it is not the job of politicians to tell people how they should run their family finances. What concerns me is that cynical lenders and a complacent government are together fuelling a future crash.

80% of all borrowing - now a trillion pounds (twelve noughts) - is secured against house prices that are still rising after an extraordinary boom. If the predictions of the IMF and growing numbers of analysts are correct, prices could tumble by a third leaving many in negative equity. And interest rates are set to rise further making repayments more onerous. Yet the banks continue to pump credit into the market with minimal checks. And there are charlatans inviting gullible investors to put their money into 'bricks and mortar' as occurred at the peak of the stock exchange bubble.

The government has responsibility for economic management. But other than the Bank of England raising interest rates, no one is taking responsibility for the debt 'bubble'.

The CAB is just about the only source of genuine independent financial advice, unlike the staff of banks and other financial institutions who get commission or bonuses for persuading customers to take out a loan or credit card. More places are needed where it is possible to get a financial health check. Preventive action now could prevent a disaster later.