Government Muse Heed Warning Signs For Economy - Cable

12.00.00am BST (GMT +0100) Fri 17th Oct 2003

In a speech to City Bankers yesterday, Ed Balls, the Chancellor's closest advisor, acknowledged the looming problem of consumer debt. But it is far from clear whether the Government have any strategy to deal with it.

Commenting on the speech, Vince Cable MP, Liberal Democrat Shadow Chancellor said: "At present, there is a huge gap in decision making between the Treasury, Bank of England and the Financial Services Authority. None of them have ownership of the personal debt problem, and therefore lack solutions to deal with it."

"There are two enormous looming difficulties, the first is that large numbers of people are already struggling to service their debt. Many more will struggle when interest rates rise, as predicted by the Bank of England."

"The second big danger is that once consumers begin to realise that there is a problem they will stop spending, and the current precarious economic growth will be stopped in its tracks."

"Yesterday's speech indicates that the Government now realise the good days are over, and that we're heading into a very difficult period where worries about household debt will emerge as a dominant economic concern."

"Those with equity release products will be among the first casualties if market conditions change radically."

"Despite this knowledge neither the Government, or FSA, have any plans to provide consumer protection for the hundreds of thousands of pensioners who opted for home reversion schemes."

"The Government must act now to build in early warning signals for banks and other credit agencies when they are exceeding dangerous levels of lending. They must also insist on the provision of health warnings on all unsolicited credit and end penalties for early repayment. Tighter controls are needed for unscrupulous lenders who are flourishing while low-income borrowers get into deeper distress."