Posted: 27 October 2017

Latest debt dance is harming our future

Guest blogger and new Liberal Democrat leader Sir Vince Cable writes for us on problem debt and his party's renewed focus on young people.

Chuck Prince, Chief Executive of banking giant Citigroup, famously said before the onset of the global financial crisis: 'As long as the music is playing, you’ve got to get up and dance. We’re still dancing.'

He was articulating his bank's strategy, which was to keep dancing to the tune of a profitable debt-fuelled bubble. Just 16 months later, Citigroup had to be bailed out to the tune of $300 billion as the crisis, which it helped to precipitate, exploded.

Chuck's remark also happens to link two topics for which I’m probably best known outside political circles. Many recognise me from my foxtrot on BBC's Strictly Come Dancing. Others remember me as one of only a few politicians warning about our growing personal debt crisis several years before the crash.

Dancing on debt yet again

Since becoming leader of the Liberal Democrats this summer, I've been speaking out again about the worrying rise in unsecured debt. Recent figures from the Bank of England showed that unsecured consumer debt is growing by 10% per year and continues to climb beyond £200bn; a level not seen since the financial crisis. Credit rating agency Moody's warned that those on low incomes are the most exposed.

The Children's Society’s work to understand the impacts of problem debt on families and young people is extremely important

In the general election, the Lib Dems highlighted the 40% of the working population with less than £100 in savings and called for measures to tackle the scandal of problem debt.

Problem debt harms young people

What often gets lost in these abstract economic debates are the real-life consequences for families. After all, we should always remember that there is no actual 'economy' out there - just communities and people whose daily successes and struggles shape the data.

So I think The Children's Society’s work to understand the impacts of problem debt on families and young people is extremely important. The evidence that families with children are particularly vulnerable to financial insecurity, and of the damaging effect of problem debt on children's well-being, is alarming.

The research shows that children themselves are acutely aware of family debt problems, leaving them anxious and worried. Problem debt can impact family relationships, causing emotional distress for children, and can lead to difficulties at school and in children’s social lives. It's no wonder that children in families facing problem debt are five times more likely to have low well-being.

The FCA also recently found that one in six people with outstanding consumer debt were in financial distress, and these were more likely to include younger people and those with children.

Being ambitious for the young was one of the core planks I put at the heart of my programme for the leadership, so these findings deeply concern me. It is the young who have suffered most from the effects of the financial crisis. And it is the young who face too many barriers to taking a stake in society - including job insecurity, unaffordable housing and debt.

Let's deliver 'Breathing Space'

Now debt is not a bad thing in itself: borrowing has an important positive role in our economy and our lives. It allows us to smooth our incomes and invest in our futures, through our businesses, education and housing.

But for too many families an unexpected event – a temporary drop in income, illness, or a broken fridge - results in emergency borrowing that quickly becomes an inescapable spiral of debt. This, despite having sustainable long-term finances.

That's why the Lib Dems support a Breathing Space scheme, which would offer families seeking debt advice a period of respite from mounting interest and enforcement action, and an affordable statutory repayment plan. This will help families get their finances back on a sustainable footing and avoid the damaging side of debt.

I applaud The Children's Society's campaign for such a scheme. There have been calls for more cross-party cooperation, and Breathing Space is something that all the main political parties agree on. Indeed campaigning by Lib Dem peers in the House of Lords has already played a critical part in pushing the government to launch a consultation on introducing a Breathing space scheme in the near future.  

But there is more work to be done, both in ensuring the consultation actually delivers a tangible outcome, and in getting Breathing Space passed into law. Lib Dems will work tirelessly in Parliament and beyond to make this a reality.

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