Trillion-Day Should Sound Warning Bells for Gordon Brown

12.01.00am BST (GMT +0100) Fri 21st May 2004

Britain reached an unwelcome milestone today. The British people have collectively borrowed one trillion Pounds Sterling (£1,000,000,000,000) in mortgages, loans, credit cards and overdrafts, Liberal Democrat Shadow Chancellor Dr Vince Cable revealed today.

The interest repayable on a loan of £1 trillion at an average 7.5% APR amounts to well over £6 billion every month. Some people could be paying considerably more than that - especially on credit card loans. British households and businesses now owe banks and other creditors as much as the total external debt of Africa, Asia and Latin America put together. Yet Chancellor Gordon Brown has failed to act to prevent irresponsible lending by banks and money lenders. Today, Trillion-Day, should serve as a wake up call for the sleeping Chancellor, Vince Cable said.

Presenting a statement of account for all borrowing to the Chancellor at his Treasury offices, Dr Cable said: "Gordon Brown appears to have fallen asleep while Prudence has gone off with another man.

"Our borrow now, pay later culture has resulted in a new milestone for borrowing. The debt bubble facing the British public is truly awesome. I doubt many of us can really picture how much a trillion Pounds is. A trillion Pounds in ten pound notes placed end to end would stretch to the moon and back 18 times over.

"Even the interest we pay on that debt - £6 billion every month - is beyond comprehension. If interest rates rise as expected, if house prices fall, if oil prices continue to go up and inflation rises, many people could find themselves in difficulty.

"Gordon Brown, as Chancellor, has a duty of care towards the British people. Even if we, as consumers, are unable to recognise that we are borrowing too much, it is not in the Government's interests to return to a boom and bust economy. Sometimes, people have to be saved from themselves.

"I am today presenting Mr Brown with a ten-point plan for tackling household debt. Our proposals will result in a sustainable borrowing framework that protects consumers from unsustainable levels of personal debt, and protects the financial services industry from the damaging threat of a boom and bust economy."

The Liberal Democrats' ten-point plan for dealing with household debt comprises:

1. The publication and monitoring by the government along with the Bank of England and the Financial Services Authority of measures of sustainable household debt, along the lines of the government's own fiscal rules.

2. Guidance to banks on safe to loan value ratios and income multiples for mortgage borrowers based on independent assessments of asset values by a group operating in a similar manner to the Bank's Monetary Policy Committee.

3. Active use of reserve deposits to reduce destabilizing boom and bust in mortgage lending.

4. Curbs on the tidal wave of unsolicited credit promotion by demanding a prominently displayed 'Credit health warning'.

5. A crack down on exploitative loan sharking, with promised legislation on consumer credit to tighten up on the issuing and monitoring of credit licenses, coupled with harsher penalties for those guilty of bad practice.

6. Stopping early, often hidden, redemption penalties, so as to discourage the early clearance of debt.

7. Stronger enforcement of OFT rules to prevent abuses associated with misleading advertising by debt management and advice services.

8. Excessive interest rates on store and credit cards to be far more vigorously policed by the competition and trading authorities.

9. An extensive network of centres for independent, low cost, financial advice supported by credit providers and the investment industry.

10. Widening the remit of the social fund to permit emergency short term lending in a reaching fund for low income families in financial crises

ends

Notes

1. The Liberal Democrats asked the House of Commons Library to calculate when Britain would hit the trillion Pound debt mark, using British Bankers Association (BBA) figures. The BBA figures show lending at the end of February totalling £976.3 billion with the recent average monthly rise amounting to £8.9 billion.

2. On this basis daily lending is increasing at a rate of £291.8 million per day. If borrowing continued to rise at this rate each day going forward, then the £1,000 billion mark would be passed 82 days after the end of February. Hence 'trillion-day' would be 21 May 2004. (These figures take no account of any seasonal variation in lending and assume a constant rate of increase in borrowing.)

3. The total external debt for Sub Saharan Africa is $216 billion, Latin America $765 billion and Asia is $750 billion.

4. In a recent Parliamentary Answer to Dr Cable the Government revealed that unsecured debt (i.e. loans not secured on assets or property) per person has grown by over 50% since 1997, while incomes have risen by only 23%.