Archbishop - Protect the poorest from the effects of economic downturn - House of Lords debate
Friday 25th April 2008The Archbishop of Canterbury, Dr Rowan Williams, has today called on the government to do more to protect the poorest and most vulnerable from the likely consequences of an economic downturn.
Speaking in the House of Lords the Archbishop highlighted the fact that government targets on alleviating poverty, particularly child poverty, risked not being met and warned that in a period of economic decline the poorest in society, who carry a higher proportion of personal debt, were most at risk. In the debate, called by the Archbishop, he suggested ways in which government might help low income families avoid entering into cycles of unsustainable debt -by improving financial education in schools, enforcing tighter controls on doorstep credit agencies and by helping to foster responsible alternatives to doorstep lending, such as those offered by Credit Unions.
The debate was entitled "The Archbishop of Canterbury, to call attention to the impact on the family of economic inequality, credit and indebtedness; and to move for papers."
In his speech the Archbishop talked about the 'poverty trap' and the effect this has, particularly on children:
"One of the matters I wish to underline in this debate is that, because of a variety of problems around debt and credit, children in poverty are in fact caught in a particularly toxic version of the 'poverty trap': families with children face heavier pressures in regard to basic expenditure, pressures that push their outgoings beyond their weekly income levels. And this is not to do with purchasing luxuries: it is a matter of school uniforms, adequate diet and heating in the home, access to routine leisure activities (how much does it cost to travel to the nearest swimming pool?) and so on – never mind the extra expectations around Christmas or birthdays. ... "
He called for greater financial education to help prepare young people understand the risks of borrowing:
"There is an urgent case for more support for financial education in schools and FE institutions. Young people are vulnerable to considerable pressure – sometimes from banks themselves – to embark on risky and costly ventures into borrowing. They need skills in assessing risks, in interpreting borrowing conditions, in factoring in to their decisions some better awareness of the uncertainties of the whole system. And this needs to start early. The present situation is not good. It is estimated by Credit Action that less than 5% of secondary schools in this country give anything like adequate priority to education in money management as part of their citizenship and PHSE curriculum."
He spoke of how Credit Unions provided a better, alternative source of credit for borrowers, encouraging the government to do more to foster their growth:
"... one of the most effective agencies we have in reducing unmanageable debt and developing the skills that help people avoid the worst traps of the credit business. I refer of course to Credit Unions ....... The work of Credit Unions is still all too little known in most of the UK – though there are 172,000,000 members of unions worldwide, with over a quarter of the populations of the US, Canada and Australia being members. The potential is enormous. It is evident at the simplest level in terms of the financial burden involved in the arranging of a loan: the Credit Union makes no charges for arranging this, includes loan insurance at no extra cost and has no penalties for early repayment. Even the most reputable home credit company will be about a third more expensive than a Credit Union. Increasing numbers of Unions organise Child Trust Funds and ISAs, and provide special Christmas accounts to help prevent seasonal debt. Some have effective partnerships with local CABs and housing associations, and there is some highly imaginative work through schools to promote financial literacy."
The Archbishop warned of the dangers of the doorstep lending in relation to excessive charges and rates of interest, and praised the campaign 'Debt on our Doorstep' for their work in calling for:
"... tighter regulation of the lending market, with a proper investigation of payday lending and a cap on charges. The Consumer Credit legislation of 2005 built helpfully on the last review of practice in this area by the DTI and other agencies, but shied away from a ceiling on interest rates. While there is debate about the effects of capping interest rates in the world of home credit, with some arguing that it could encourage unofficial practice even worse than what now prevails, there is a growing consensus that a situation in which charges can legally be as high as they are in the world of doorstep lending is indefensible: it gives the message that borrowing is a business in which you can only be a long-term loser, and so gives a further turn to the despair and low self-esteem that afflicts those caught up in the debt spiral"
He said that more could be done to regulate the worst excesses of parts of the industry, suggesting that:
"a sharper regulation of the terms and methods of advertising for doorstep credit, which at present is often deliberately unclear about charges and rates of repayment, would bring some checks upon what is increasingly seen as an open scandal
The Archbishop also welcomed government attempts to combat poverty but pointed out that current targets were unlikely to be met on child poverty - an issue likely to be taken up by over 45 major NGO's in 2008 under the umbrella coalition of the 'Get Fair' campaign:
"We can applaud the declared aim of the Government, stated in 1999, to halve child poverty by 2010, but we have to recognise that this goal is sadly unlikely to be attained on present showing. So serious is the prospect that over 45 major NGO's are launching later this year a national campaign, 'Get Fair', aimed at galvanising once again the commitment to end child poverty by 2020, the date originally set – and at tackling the negative and unjust image of people living in poverty that prevails in a worryingly large percentage of the population."
The full text of the Archbishop's speech is below, from Hansard:
The Most Reverend Primate said:
"My Lords, I declare an interest as president of the Children's Society, the Church Urban Fund and the Family Welfare Association and as vice-president of Barnardo's. Thanks to the discussions so ably initiated by the noble Earl, your Lordships will need no reminding from me of the present crisis around credit in our economy and in the global economy. Daily headlines highlight the effects of the credit crunch on average incomes and home prices. What they do not always underline is the disproportionate effects on those in our society who are already most disadvantaged, particularly vulnerable families.
Even before the current crisis, the situation was disturbing enough. The estimate that almost one-third of children in the United Kingdom are living in poverty is a statistic that needs to be shouted from the housetops. We can applaud the declared aim of the Government, stated in 1999, to halve child poverty by 2010, but we must recognise that this goal is, sadly, unlikely to be attained on present showing. So serious is this prospect that over 45 major NGOs are later this year launching a national campaign called Get Fair, which is aimed at once again galvanising the commitment to end child poverty by 2020, the date which was originally set, and at tackling the negative and unjust image of people living in poverty that prevails in a worryingly large percentage of the population.
One of the matters that I wish to underline in this debate is that, because of the variety of problems around debt and credit, children in poverty are caught in a particularly toxic version of the poverty trap. Families with children face heavier pressures in regard to basic expenditure, pressures that push their outgoings beyond their weekly income levels. This is not to do with the purchase of luxuries; it is to do with school uniforms, adequate diet and heating in the home, access to routine leisure activities and so on. How much does it cost to travel to the nearest swimming pool? Never mind the extra expectations around Christmas and birthdays.
A 2007 report commissioned by Barnardo's quoted a mother who was facing a choice in the winter between putting the fire on and using the cooker to prepare a meal. Incidentally, households using pre-payment meters are generally reckoned to be fuel-poor; that is, with over 10 per cent of household income going on fuel. The expense of that system is so much greater than payment of fuel bills by direct debit, which is of course impossible if you have no reliable credit arrangements. The Government's pledge to tackle fuel poverty in the recent Budget is a welcome if overdue recognition of the scale of this problem.
The results of living in such a trap are long-term. The Children's Society's Good Childhood inquiry, of which I have the honour to be patron, has tabulated evidence of the outcomes of child poverty in adolescence and early adulthood, including a lower likelihood of planning to marry and a belief that health is a matter of luck, both of which are unhappy auguries for the stability and welfare of the next generation. But the more immediate consequence of such situations is that such families are far more likely to resort to borrowing and to what might be called panic borrowing; that is, resorting to whatever means of credit they can discover by word of mouth or by advertisement. If they borrow from doorstep lenders, even relatively reputable companies—there are plenty of others—will impose interest levels whose impact is crippling. The cycle of financial deprivation and anxiety is continued, and the vulnerability of children in such a family situation is intensified.
It is not surprising that, to use figures extrapolated from a Bank of England report on financial pressures a few years ago and circulated by Church Action on Poverty, households with an income of less than £12,000 per annum have unsecured debts corresponding to an average 36 per cent of that income. The figure for households with over £50,000 income per annum is a little over 12 per cent. Those percentages, which are from a few years ago, have increased dramatically for low-income families, more than doubling for the lowest sector.
Apart from the bare fact of chronic financial insecurity, the effect in terms of mental health is increasingly serious. There is still a stigma attached to unsecured debt, and being caught in the spiral of indebtedness produces depression and demoralisation, and stress on relationships and on consistent and responsible parenting, with an intensified risk of so many of those things which we currently spend millions of pounds attempting to eradicate, such as teenage pregnancy, underachievement in schools and a lack of motivation in relation to work and self-care. The marriage guidance organisation Relate notes that money worries are one of the primary factors in relationship breakdown, and Christians Against Poverty reports that one in three of its clients has considered suicide before approaching it for help. The impact of debt is enormous in these respects, and we badly need more joined-up thinking that can factor into our response to debt an awareness of costs to the NHS, to education services and to overall productivity.
Some of your Lordships may not be familiar—indeed I hope that most noble Lords will not be directly familiar—with the world of doorstep credit, in which charges of something in the region of 1,000 per cent are not unknown. The rapidly expanding system of payday lending, where a customer in employment is encouraged to write a cheque, or more often a number of cheques, post-dated to the next payday and is given a cash advance on a certain proportion—perhaps 7 or 8 per cent of the sum, the remainder being treated as a fee—traps the borrower in a spiral of debt as the arrangement is rolled over into a new phase if there are problems with repayment. The initial debt remains, augmented by soaring charges and the mortgaging of all income for long periods ahead. For those without bank accounts in the first place, the pressure of informal credit arrangements is still harsher. It is not surprising that loan companies are reporting massive profits at the moment.
What needs to be done? The Church of England's campaign, Matter of Life and Debt, which was launched at the beginning of this year, has offered what has been widely recognised as a sane and practical set of guidelines for church members and the wider public about avoiding the worst traps of the present situation. But if we ask what needs to change, there are some obvious proposals to consider. The campaigning association Debt on our Doorstep, led by Church Action on Poverty, is pressing for tighter regulation of the lending market, with a proper investigation of payday lending, which I have just described, and a cap on charges. The consumer credit legislation of 2005 built helpfully on the last review of practice in this area by the DTI and other agencies, but shied away from a ceiling on interest.
While there is some debate about the effects of capping interest rates in the world of home credit, with some arguing that it could encourage unofficial practice that is even worse than that which now prevails, there is growing agreement that a situation in which charges can legally be as high as they are in the world of doorstep lending is indefensible. It sends the message that borrowing is a business in which you can only be a long-term loser, and so gives a further turn to the despair and low self-esteem that afflicts those caught up in the debt spiral. If the historic sin of usury still has any meaning in the world of smoke and mirrors that our modern credit economy seems to have become, it is surely in this context. At the very least, sharper regulation of the terms and methods of advertising for doorstep credit, which at present is often deliberately unclear about charges and rates of repayment, would bring some checks on what is increasingly and rightly seen as an open scandal.
As I noted earlier, all this has been true for some years. In a period of economic turndown, it is likely to be far worse, hence the urgency that I underline today. A precarious economic situation does not impact equally on rich and poor; if banks are forced to become more restrictive about where and with whom they operate, it is those whose access to credit is already limited who will feel it most sharply. Within that group, I have argued, it is those who have least control over the circumstances in which they live who will suffer most—children and vulnerable family units without secure income, particularly households in which lone women have the pivotal financial responsibility.
There is a twofold ethical concern to hold in mind as we consider what should be recommended to meet this challenge. Undoubtedly, Christian morality mandates the defence of the vulnerable. That is central to any society that claims any residual loyalty to our traditional ethic, but Christian morality is also about the equipping of people for the exercise of their human dignity as citizens both of their own societies and of the City of God—St Paul in Second Thessalonians famously commends not only generosity to the poorest, but responsibility on the part of those who can work to do so and to support themselves and their families. Giving to others is part of a process that enables those others to grow in their own dignity and to become givers in their turn. In other words, there is no question of Christian ethics idealising a state of dependency. In the time left to me, I should like to outline two areas in which more could be done to support this positive goal of drawing people out of dependency.
The first is a matter flagged by many commentators. Young people who have grown up in a context where debt is seen as a routine thing—a perspective which student loans have reinforced—are likely to be very ill prepared indeed to tackle the challenges of family budgeting or even personal budgeting as adults in a climate where economic fluctuations make their reliance on credit a highly risky affair. In other words, there is an urgent case for more support for financial education in schools and FE institutions. Young people are vulnerable to considerable pressure—sometimes, in the recent past, from banks themselves—to embark on risky and costly ventures into borrowing. They need skills in assessing risks, in interpreting borrowing conditions and in factoring into their decisions some better awareness of the uncertainties of the whole system. This needs to start early. The present situation is not good. It is estimated by Credit Action that less than 5 per cent of secondary schools in this country give anything like adequate priority to education in money management as part of their citizenship and PHSE curriculum.
Furthermore, as the commission chaired by my fellow townsman, the noble Lord, Lord Griffiths of Fforestfach, argued three years ago in a very significant document entitled What Price Credit?, lenders need to take more active responsibility for educating borrowers. The proposal in that commission's report that lenders should routinely "audit" letters and information materials sent out in their name, using the independent resources of a recognised debt advice charity, to ensure that they are, "accurate, fair and easy to understand", deserves strong support and further development."
The second area I should like your Lordships to consider is how we support one of the most effective agencies we have in reducing unmanageable debt and developing the skills that help people avoid the worst traps of the credit business. I refer of course to credit unions, and I declare a further interest as a member of the District of Canterbury Credit Union and a former sponsor of a national initiative in Wales which brought together the resources of the Wales Co-operative Centre and the Anglican Church. The work of credit unions is still all too little known in most of the UK, although there are some 172 million members of credit unions worldwide, and more than a quarter of the populations of the United States, Canada and Australia are members. The potential is enormous. It is evident at the simplest level in terms of the financial burden involved in the arranging of a loan: the credit union makes no charges for arranging this, includes loan insurance at no extra cost and has no penalties for early repayment. Even the most reputable home credit company—and there are many others—will be about a third more expensive than a credit union. Increasing numbers of credit unions organise child trust funds and ISAs, and provide special Christmas accounts to help prevent seasonal debt. Some have effective partnerships with local CABs and housing associations and there is some highly imaginative work through schools to promote financial literacy. The Saving Gateway initiative, piloted by the UK Government, which is due for a national launch in 2010, allows for matching contributions to be added to the savings of low-income members of credit unions.
The encouragement of locally based, entirely trustworthy, user-friendly, educationally sensitive and confidence-building methods of managing debt should be among government's highest priorities in combating the poverty traps that I have described. Many of your Lordships will be aware that a review is under way of legislation on credit unions and other co-operative ventures. It is much to be hoped that fresh legislation will bring increased flexibility by, for example, enabling credit unions to work with corporate members—small family businesses, religious groups active in community work, local co-operative networks and so on—and giving the option to members of paying interest on continuing savings retained in the credit union, rather than receiving a dividend. The latter would have an enormously positive impact on the further development of child trust funds and similar arrangements.
Furthermore, a broadening of the definition of a common bond area to enable the services of a credit union to be shared across different localities would help these organisations to move more effectively into neighbourhoods where there is no accessible credit. All these new liberties might make the credit union movement in due course as significant a presence in our credit economy as it is elsewhere—bearing in mind that the pressures arising from our current crisis will not be exclusively a matter of concern for the poorest sectors of our society.
The causes of poverty are many. Setting aside the lazy but persistent mythology that blames all poor people for their poverty, the majority of people in this country who experience deprivation and disadvantage are caught in events beyond their control—and this is manifestly true of children. In recognising the destructive impact of indebtedness upon such people, we may find ourselves asking harder questions about the sustainability of any economy, global or local, that depends disproportionately on endlessly spiralling credit, detached from the realities of material ownership and production. But whatever our views on these large and contentious questions, we should resolve on specific, targeted measures that will protect those currently so ill protected against the tyrannies of doorstep credit and provide the tools needed to reclaim some skill and competence in the management of money and resource, so that the ongoing destructive effects of economic privation on the lives of families can be arrested. I beg to move for Papers.
The Archbishop also gave the following remarks in summing up, to close the debate:
"My Lords, I am grateful for the quality of today's debate, and particularly grateful that noble Lords have of their charity forborne to point out one embarrassingly obvious error in my opening remarks, which I identified when consulting my notes. I referred to the percentage offered by payday lenders—cash down in return for a cheque—as 7 to 8 per cent rather than 70 to 80 per cent. That is a significant difference and I beg your Lordships' pardon for misreading my notes at that point.
I am also grateful for the elegant New Testament exegesis provided by the noble Lord, Lord Desai, though I should point out that the moneychangers in the temple operated a highly controlled and successful monopoly, which is perhaps not precisely the analogy that many of us in the Chamber would wish to follow. It is not a wholly academic point because, as the noble Lord, Lord Griffiths of Fforestfach, observed in his helpful comments, the problem with many of the existing loan companies is that a pattern of near monopolistic control has developed, which is why it is perfectly correct to discuss this in the context of the Competition Commission. I would be more readily persuaded to abandon all hope of a cap on interest were I a little more confident than I currently am of that competition being assured, but I watch developments with interest.
A number of points have emerged clearly from several speakers, and I should not like to lose them at the end of this debate. Several of your Lordships have noted the significance of non-economic factors in poverty and the way out of it. Above all, these are family structures and security. The stability of the family as one of the factors that guards against spiralling poverty is something that noble Lords from every kind of conviction and background have reinforced today, and I am very happy to hear that.
Part of that concern about structured stability also relates to the vital point about savings first raised by the noble Baroness, Lady O'Cathain. Savings, as we have heard from several quarters, represent precisely that kind of planning for security, that kind of fundamental trust in the future, that much of our current climate so conspicuously lacks.
Two points were not picked up at great length but are material to understanding better the whole context. The first is the point initially raised by the noble Baroness, Lady Greengross, about disability as a factor in poverty. I would hope that that is factored in to all that we say about the peculiar trap that poverty represents for people with long-term illness, occupationally related illness and chronic disability. Not unconnected with that is the point raised by the noble Lord, Lord Haskel, about the security required being a security that should be seen in the levels of public service provision, on which the poor are exceptionally dependent. That certainly relates dramatically to the point raised by the noble Lord, Lord Patten, about rural poverty.
I have two general observations before I sit down. One has to do with the word inequality, which has been bouncing back between the walls of the Chamber in the last hour or so. I do not think that anyone would wish to oversimplify here. As we have been reminded, inequality can be a descriptive term; it can be an evaluative term. It is important to know in which sense we are using it at any given time. When levels of economic inequality in society reach the stage described by the noble Baroness, Lady Sharp—the point where, for example, we see the migration of portions of the population into gated communities and deeper divisions appearing—the sense of trustful investment by the poorest in the whole of society is weakened. In other words, it is a problem of alienation, not simply of economic disparity. The challenge, therefore, is to restore some level of trust in the structures of society and its economic operations.
My final observation is a paradox, a paradox to which many noble Lords have referred during today's debate—that those who are most in need of dependable credit in our society seem to find it hardest to obtain it, and that those to whom it is most readily and irresponsibly offered by many agents are those to whom it should not be so readily available. A great deal of what we have been discussing today has essentially focused on how we disentangle the complex processes that have led to such a contradictory situation. I am encouraged by a great deal of what I have heard on all sides today. I am most grateful for the enthusiasm, skill and intelligence that have been expended on this crucial issue by your Lordships during this debate. I beg leave to withdraw the Motion for Papers".
Motion for Papers, by leave, withdrawn.