Hansard

I very much welcome this important debate, which focuses on what has become a huge problem throughout the UK—namely, consumer debt and the activities of illegal moneylenders or loan sharks, who prey on some of the most vulnerable in society and cause immense misery.

The full extent of the problem associated with personal debt and financial exclusion can be graphically illustrated by the following stark statistics. Including mortgage debt, total consumer debt in the UK is more than £1.2 trillion, an amount that is larger than the UK's annual gross domestic product. Britain's personal debt increases by approximately £1 million every four minutes. To put that in context, the average UK consumer owes over 200 per cent more than the average western European.

There is little doubt that the easy access to credit offered by major credit card companies contributes to the level of personal debt. Such offers are invariably unsolicited and irresponsible. As a result, there are 31.6 million credit card holders in the UK today, with every person having an average of 2.4 cards, which in turn means that there are more credit cards than people. The average interest rate on credit card lending is currently 15.72 per cent—a staggering 11 per cent, approximately, above the base rate.

As more people attempt to manage existing debt by accessing new credit, it is not difficult to see how their debt spirals out of control. Hence, insolvencies are up by 55 per cent in the current quarter, in comparison with the same period in 2005, and they are estimated to top 100,000 for the entire year. Furthermore, the average age of a bankrupt has fallen from 43 to 41 in the past four years and the proportion of young bankrupts, aged between 18 and 29, has more than doubled.

Given those sobering statistics and the fact that, according to a recent Financial Services Authority survey, 62 per cent of young people admitted that if they had money problems or debt they would not be able to name any advice or support service to which they could turn, it is clear that here is fertile ground for loan sharks.

Illegal moneylenders operate without a credit licence. According to recent research commissioned by the DTI, their victims fall into two main categories. The first category contains the credit impaired and represents about a third of the victims—people who have chaotic lifestyles associated with drug or alcohol abuse, who might work occasionally, but who have systematically slipped down the credit ladder.

The second category is that of the credit excluded, which contains about two thirds of the victims. These are people who are unable to access mainstream credit for a number of reasons. They are usually on benefits and are among the most vulnerable people in society.

The DTI has responded to the problem positively and effectively by setting up an illegal lending enforcement pilot project, which has been allocated £2.6 million over two and a half years, with a further £1.2 million secured from the financial inclusion fund. The project funds regional teams, including one in Glasgow, to investigate the impact of enforcement against illegal money lenders. The teams have achieved a number of notable successes since the pilot was established in September 2004 and appear to be on target to recoup £2 million, which is roughly equivalent to the original budget for the pilot. The Glasgow team has reported 12 cases to the procurator fiscal and three loan sharks have been sentenced. Five hundred people have benefited as a result of Scottish loan sharks being prosecuted, with savings of almost £250,000 that would otherwise have been demanded from some of the poorest people in Scotland. The team has seized or frozen £500,000 of loan sharks' assets and recovered £5,000-worth of counterfeit goods.

The subsequent DTI evaluation highlights areas of policy for which the Liberal-Labour pact must assume responsibility and in which it must play its part. This is the aspect of illegal lending that my amendment covers. The evaluation emphasises that effective relationships with key partners must be in place and stresses that the police have a pivotal role. It is therefore crucial that adequate police capacity and powers are available to ensure proper enforcement. As the minister said, the removal of loan sharks involves significant police resources and manpower, so there are major resource implications. However, the pact's commitment to ensuring that that resource is in place will always be in doubt as long as it continues to dedicate precious funds to employing community wardens rather than full-time police officers, as wardens do not have sufficient powers to deal with loan sharks or to give the public the confidence to report illegal moneylending without fear of reprisals. It is also essential to ensure that credit unions have sufficient capacity to offer instant loans and to manage high-risk borrowers.

Tackling personal debt and financial exclusion is an issue of social responsibility—we are all in it together. Government must ensure that we have fair and proportionate regulation; that consumer protection is in place; and that financial education and financial inclusion are promoted. If supervised attendance orders were available as a first disposal in the justice of the peace courts, that would go some way towards ensuring that potential victims of loan sharks could access money management services as soon as possible. Individuals must act responsibly and take into consideration the consequences of borrowing and spending. Civic society, charities and non-governmental organisations should be encouraged to devise innovative local solutions that address local issues in a way that centralised services cannot. Crucially, business must provide important financial advice and training that illustrates how success goes hand in hand with lending responsibly and acting with integrity.

Government, civic society and business must therefore all work in partnership and play their part in tackling personal debt and financial exclusion. My amendment acknowledges that fact whereas, by contrast, the Scottish National Party amendment is divisive.

I move amendment S2M-5669.2, to insert at end:

"recognises that an increase in the number of police walking our streets would encourage and give people more confidence to report the activities of illegal money lenders in local communities, and believes that tackling personal debt and financial exclusion is an issue of social responsibility."