All Party Parliamentary Group on Credit Unions
Speech by the Rt Hon Iain Duncan Smith MP
Introduction
Debt was one of the pathways to poverty identified when I was at the Centre for Social Justice - alongside addiction, educational failure, family breakdown and welfare dependency.
皇冠体育app CSJ looked at the issues carefully a few years ago in two reports: Breakdown Britain and Breakthrough Britain.
皇冠体育app first report warned that the level of personal debt in the UK was unsustainable - and some of the banks complained that this was scare-mongering鈥�
That was not long before Northern Rock went to the wall.
Our challenge now is to keep working to highlight the serious issue of personal debt.
皇冠体育app UK debt problem
Household debt levels have doubled in the last decade, from 拢700 billion ten years ago to almost 拢1.5 trillion today.
And total outstanding consumer credit - which excludes mortgages - now stands at 拢214 billion.
That鈥檚 an average of around 拢16,000 for every indebted household.
Impacts on families
皇冠体育app impact of this debt burden is played out on doorsteps across the UK on a daily basis.
Low income families are paying huge interest rates for cash to cover what are sometimes no more than the costs of daily living.
Meanwhile those lending the money are on to a nice earner, often charging interest rates of more than 200% APR - and sometimes more than 2,000%.
Interest at these rates can cause an ever-increasing spiral of debt, dependency and despair.
And some illegal operators are employing unspeakable methods to extract payment.
Just the other week a loan shark in Wales was jailed for charging extortionate rates of interest to a vulnerable woman.
On an initial loan of 拢500 she was forced to pay back 拢3000, and was subject to aggression and intimidation at the hands of the lender.聽聽
This is what we mean by the poverty premium - not just paying a high monetary price for borrowing, but paying a high emotional price too.
Worse still, we know that indebtedness is closely correlated with other key 鈥榩athways to poverty鈥�.
Where families have serious money problems it can make it much more difficult to hold down a job or build a stable and loving relationship, and the stress at home can impact on children鈥檚 performance at school.
What we鈥檙e doing
Part of the problem is that we have little or no savings culture or Britain - there are currently some seven million people not saving enough to give them the income they want or expect in retirement.聽
But we also lack the strong institutions needed to provide those on the lowest incomes with a fairer source of credit.
When you look at the figures, you find that we have a very low 鈥榩enetration rate鈥� of Credit Unions compared to other rich countries - just 2% of people in the UK are members of a Credit Union, compared to 24% in Australia, 44% in the United States and almost 50% in Canada.
This was something looked into carefully when I was at the Centre for Social Justice, with a range of recommendations made for reform aimed at restoring a culture of saving and fair credit in the UK.聽
皇冠体育app Breakthrough Britain report argued that UK Credit Unions should be strengthened, supported and expanded - and I鈥檓 pleased to be able to stand here today and say that鈥檚 precisely what we鈥檙e doing.
We鈥檙e making a 拢73 million fund available that will support suitable Credit Unions to expand and become financially sustainable within four or five years, helping up to one million more people access clearer and fairer Credit.
We want people to have a local, trusted organisation to turn to when they are in financial need, not a local loan shark.
Of course we need to make sure this money is well spent, which is why we are carrying out a feasibility study over the next few months which I鈥檓 delighted to say that Deanna [Oppenheimer] is leading.
皇冠体育app CSJ were clear that commercial banks needed to support the development of Credit Unions as part of their social responsibility - Deanna and Barclays have certainly stepped up to the mark on that count.
I am also pleased that Lord Griffiths - who chaired the debt group at the CSJ - has agreed to join Deanna on the study.
And this isn鈥檛 just about building the role of Credit Unions.
It is about enabling a whole network of trusted, local organisations to deliver vital services for some of the most vulnerable people in society.
Take the Post Office.
Part of the feasibility study will involve exploring if people are happy to use credit union services over Post Office counters, and whether this could be an opportunity for the Post Office to build on existing work with local credit unions to develop a national income stream.
I should also touch on the issue of the Legislative Reform Order, as I know many of those present will be keen to know how it is progressing.
皇冠体育app LRO will enable and encourage credit unions to grow their membership, by removing outdated restrictions on what they can do.
It鈥檚 frustrating that there have been delays in getting this through, but it is important that we get this right, and I can confirm that subject to Parliamentary Scrutiny the LRO should be on the statute books in the Autumn.
Conclusion
But of course this is about more than parliamentary instruments, feasibility studies and departmental funds.
It is about giving dignity back to some of the poorest people in our society, ending a situation where those who have the least pay the most.
It is about helping people manage their finances better as we move towards the Universal Credit.
And it is about putting the UK鈥檚 Credit Unions on a more sustainable footing for the future.