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Binge borrowing will put Brits £1,000,000,000,000 in debt by Summer - Cable

February 3, 2004 12:00 AM

British people will have debts of a staggering £1,000,000,000,000 (one trillion Pounds Sterling) by summer 2004, LibDem Shadow Chancellor Vincent Cable warned today.

British households now owe banks and other creditors as much as the total external debt of Africa, Asia and Latin America combined. Dr Cable called on Gordon Brown to take responsibility for reining in irresponsible lending on mortgages, personal loans and hire-purchase deals. Rising interest rates, falling house prices, and mounting personal debt are all danger signs for the British economy, Dr Cable said. Gordon Brown, as Chancellor, would be abdicating his responsibility to the public if he didn't act quickly.

Launching the new Liberal Democrat ten-point plan on debt, Dr Cable said:

"British consumers have been on the biggest borrowing binge in history. It is staggering that we are on the way to borrowing one trillion Pounds by this summer.

"Consumer borrowing has been keeping the British economy going but this isn't sustainable. Any sensible person will know that you cannot simply keep on borrowing more than you can afford to pay back.

"Yet at every turn people are being encouraged to borrow more. Supposedly interest free loans are dropping out of the sky, mortgages are given at four or five times our earnings, credit card companies are falling over themselves to encourage us to spend more. Unsecured debt has risen by over 50% since this government came to power.

"Although interest rates are currently low they are rising. A £100,000 mortgage could well involve increased payments of £40 per month were interest rates to rise by 0.5% this week when the Bank of England's Monetary Policy Committee meets to set interest rates.

"Gordon Brown, as Chancellor, has a duty of care towards the British people. Even if we, as consumers, are unable to recognise that we are borrowing too much, it is simply not in the Government's interests to return to a boom and bust economy. Sometimes, people have to be saved from themselves.

"The Liberal Democrats are today launching a ten-point plan for tackling household debt. Our policies will result in a sustainable borrowing framework that protects consumers from unsustainable levels of personal debt, and protects the financial services industry from the damaging threat of a boom and bust economy."

The Liberal Democrats' ten-point plan for dealing with household debt includes:

1. The publication and monitoring by the government along with the Bank of England and the Financial Services Authority of measures of sustainable household debt, along the lines of the government's own fiscal rules

2. Guidance to banks on safe to loan value ratios and income multiples for mortgage borrowers based on independent assessments of asset values by a group operating in a similar manner to the Bank's Monetary Policy Committee

3. Active use of reserve deposits to reduce destabilizing boom and bust in mortgage lending

4. Curbs on the tidal wave of unsolicited credit promotion by demanding a prominently displayed 'Credit health warning'

5. A crack down on exploitative loan sharking, with promised legislation on consumer credit to tighten up on the issuing and monitoring of credit licenses, coupled with harsher penalties for those guilty of bad practice

6. Stopping early, often hidden, redemption penalties, so as to discourage the early clearance of debt

7. Stronger enforcement of OFT rules to prevent abuses associated with misleading advertising by debt management and advice services

8. Excessive interest rates on store and credit cards to far more vigorously policed by the competition and trading authorities

9. An extensive network of centres for independent, low cost, financial advice supported by credit providers and the investment industry

10. Widening the remit of the social fund to permit emergency short term lending in a reaching fund for low income families in financial crises