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Wednesday, January 09, 2008

Dealing with personal debt

The level of personal debt in this country is a matter of great concern. A report from financial consultants Grant Thornton last year suggested that collectively we owe the grand total of £1,335bn, which is £5bn more than the economy is worth.

There is a clear case for the government to take action to prevent credit mis-selling by the High Street banks and financial institutions so as to ensure that people are not suckered into deals they cannot afford.

My main concern though is the impact on younger people. Rising house prices are forcing them to borrow ever-larger multiples of their salaries to buy a home, graduates are starting jobs with five-figure debts from tuition fees and living expenses, and yet the banks continue to target them with offers of massive lines of credit. Credit card debt alone is £126bn.

The banks have a huge responsibility in this area, and some are not living up to it. Because they make far more money from borrowers than from savers and investors, it's clearly in their interest to get young people to borrow as soon as they can.

The other part of the market that causes concern is those companies who offer loans so as to enable people to consolidate their debt. In principle this is a good thing providing that those who take up this option are disciplined in how they manage their finances, however they should be wary of over-committing themselves especially when they are using their home as security for the loan.

It is for that reason that I have a problem with organisations who advertise generous lines of credit. Like Guido Fawkes I believe that over-zealous gearing is financially irresponsible. Guido Fawkes highlights the case of Picture Financial Services whose website offers loans of 'up to 125% of the value of your home, something that traditional lenders won't consider', and for good reason.

What is the Government's response to such offers? Well, they provide personal endorsements. The Picture Financial Services website contains a prominent testimonial from the Secretary of State for Work and Pensions praising the company for its success.

Questions must be asked as to whether it is appropriate for a government minister to offer such testimonials, particularly one who is responsible for the whole apparatus of state support to the less-well off in our society. It seems that the Government's response to our growing personal debt burden is to shrug their shoulders and turn the other way
The comment on the website is clearly taken from a press release when Picture opened up their new offices at Imperial Park in Newport. It could have been made by a Secretary of State from any party. It refers not to the nature of Picture's business but to the creation of jobs in the Newport area which any Secetary of State would welcome. The attempt by Guido Fawkes to link Peter Hain to supporting high interest loans in return for his donation to his deputy leadership campaign is pretty pathetic.The nature of Picture's business might not be the taste of many. But what do politicians do when it comes to jobs? If Welsh politicians had told Picture that it disapproved of its business activities and did not want the company in Wales then the employment would have gone somewhere else. You can't criticise Peter Hain when Liberal Democrats in Swansea enthusiastically welcomed Aspers and your colleagues in Cardiff bid for the supercasino. You can't have it both ways. If you adopt a completely moral approach to politics then no politician should welcome any form of gambling.
I am not taking issue with the nature of Picture's business anymore than I do with that transacted by Aspers. The casinos in Swansea and Cardiff are regulated and that regulation has recently been strengthened. What I am arguing is that regulation of credit companies such as Picture needs to be strengthened as well. That position is perfectly consistent.
Nice try, Peter, but no cigar. Jack Frost is right - it would be odd if the Sec of State for Wales didn't say something nice about a big business investment in Wales. This is a political pot-shot on your part dressed up as something more honourable. A bit sad, really.
That may be plausible if Peter Hain had not then accepted a £5,000 donation from the owner of the company. The two matters are obviously not connected but clearly Mr. Hain's relationship with the owner of this company is more than a routine endorsement welcoming new jobs to the area. It is not usual for companies to use comments by ministers as a marketing tool in this way. Has Hain actually requested that the endorsement be removed from the website?
The £5k is peanuts compared to the £2.4m that Michael Brown gave the Liberal Democrats. The simple fact is that anyone who knows anything about Welsh politics knows that a number of Welsh businessmen have been impressed by Peter Hain and that is the reason for the donations. The amounts are quite small compared to what some businessmen shelve out on items such as boxes in sporting stadia throughout the UK. For Picture this was small change. I also can't really see anyone chosing Picture for a loan because of a comment from Peter Hain. I doubt if most of Picture's customers even know who Peter Hain is. The individuals who use Picture are so desperate for money that they will go to anyone who will give them the loan. They must be if they are persuaded by that idiot of a woman in the TV ad who wants a £25,000 loan. The only way to stop companies such as Picture is to start providing sound financial advice in schools and make school children realise that there is no such thing as a free lunch. Banks should also be banned from offering students free over draft facilities without explaining that it will all come to an end one day and they will find themselves being encouraged to take out loans to pay off the overdraft. Although people go on about the good old days of grants. Those of us who went to university at that time knew that we had to work in local industry during the summer holidays to survive and that we would get a stiff letter off the local bank manager if we went just £1 in the red. A little more personal financial discipline in a person's twenties and early thirties could be the recipe for long term happiness and less heartache.
So, we agree on some of the measures that need to be introduced to tackle this problem.
I don't recall the members for Newport sending a message of support when that highly profitable knocking-shop was set up.
Frank Little
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