Anti-poverty campaigners will today (Tuesday 6th March) call on the Government, the Bank of England and the Financial Conduct Authority (FCA) to instigate a Household Debt Jubilee in order to release low income households from billions of ‘unjust’ consumer credit debt.
The call for action is being made the Jubilee Debt Campaign and the Centre for Responsible Credit and is supported by the New Economics Foundation and actor and activist Michael Sheen OBE. It comes as new analysis indicates that the burden of repaying Britain’s £239 billion mountain of consumer credit debt is weighing heavily on poorer households.
• 3 million households (containing approximately 7 million people) are now severely indebted – paying more than a quarter of their income to their creditors. Of these, over three quarters (77 percent) are living in households with incomes below £38,000 per year.
• The debt to income ratio of the poorest fifth households has doubled in the past two years, as falling real wages and welfare cuts, for those in and out of work, have hit hard and forced many to borrow in order to meet the rising cost of living.
• The poorest households now owe an average of £9,800 to consumer credit lenders, and are paying at least 10 percent of their incomes on debt interest and 35 percent on debt repayments overall.
• These households owe more, relative to their income, than better-off households, and in many cases will take as long as 10 years to clear their debts.
The campaigners have proposed measures to identify the households hardest hit by unjust debt and implement a partial write-off to bring their debts down to a level that can be repaid within a maximum 3-year period and with payments not exceeding 10% of their income.
They also propose an extension of the 100 percent total cost cap which currently applies to payday lenders to all areas of the consumer credit market, so that no-one should have to pay back more than twice the amount that they originally borrowed.
Commenting ahead of a Parliamentary launch, chaired by Lord Sharkey, Sarah-Jayne Clifton, Director of Jubilee Debt Campaign said:
“The UK is facing a severe household debt crisis that is hitting poorer families the hardest. Low wages, insecure work and rip-off lending are driving people into debt and keeping them there. Families across the country are having to take on debt just to heat their homes and feed their kids. This cannot continue. We need to give these families a fresh start and the only way to do that is through some form of debt write-off.”
Damon Gibbons, Director of the Centre for Responsible Credit said:
“The Government, Bank of England and Financial Conduct Authority need to come together urgently and provide a coherent and credible plan to tackle Britain’s rapidly developing household debt crisis. Despite repeated acknowledgements that the household debt burden is unsustainable we have seen next to no action to address it. Our suggested package of measures would not only boost the economy but also help relieve the pressure on public services that the misery of debt for low income households is now creating.”
Miatta Fahnbulleh, Chief Executive of the New Economics Foundation commented:
“For millions of people, our economy simply isn’t working, and many on low incomes and in difficult, insecure work are turning to debt to keep the show on the road. But far too many are seeing their lives spiral out of control as a result.
“We urgently need to take action, and the first step is to cap the cost of consumer credit to ensure no one is exploited. We know from our work with communities all over the country how urgent this is. Let’s start tackling our debt crisis now, before it’s too late.”
The Jubilee Debt Campaign is a UK charity working to end poverty caused by unjust debt through education, research and campaigning: The Jubilee campaign has helped secure $130 billion of debt cancellation for 36 countries in Africa, Asia and Latin America.
The Centre for Responsible Credit is a dedicated research and policy unit established in 2010 and currently hosted within Learning and Work Institute. The Centre conducts research into the extent of over-indebtedness, the effectiveness of regulation and the impacts of financial health programmes and financial services provision. Its work underpinned the successful campaign to secure a cap on the total cost of credit payday lenders. Further details are available at https://www.responsible-credit.org.uk
Details of the proposals are set out in a new briefing, ‘The Case for a Household Debt Jubilee’, which is being launched at an event in Parliament on Tuesday 6 March 2018.
The organisations behind the proposals are part of a new UK coalition that has come together to tackle the UK’s household debt crisis. The coalition, which includes the New Economics Foundation, Toynbee Hall and Research for Action, aims to tackle the growing cost of household credit and to elevate the voice of indebted people and households in the decisions that affect them.
The briefing proposes that a UK household debt Jubilee should be based on the principle of eradicating ‘unjust debt’, defined as debt which is causing harm to borrowers because it is creating a debt trap, causing material deprivation, or is exploitative in nature.
It estimates that a programme involving the write-off of around £40 billion would be required, with policy decisions needed concerning how far this should be funded through money creation (similar to Quantitative Easing) and how much of this cost should be borne by lenders.
It argues that forcing lenders to bear at least some of the cost would help to penalise the irresponsible and exploitative lending practices that have contributed to the excessive consumer credit debt burden currently faced by low to middle income households.