Bishop of St Albans alarmed by ‘profoundly destructive’ burden of UK family debt

17 November 2017

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THE “profoundly destructive” effect of debt was described in the House of Lords by the Bishop of St Albans, Dr Alan Smith, this week, in a speech that warned that the Government may need to take regulatory action.

Introducing a short debate on the topic Monday, Dr Smith said that he was “deeply concerned about rising levels of household debt in this country”. He highlighted people’s taking on an “extremely high level” of mortgage debt, and rising levels of “unsecured debt”.

More than four million people had failed to pay domestic bills or meet credit commitments in three or more of the past six months. Debt was a “pressing spiritual and social issue” and could be “profoundly destructive, isolating, and surrounded by a significant and dangerous stigma”.

Data from the Bank of England suggests that household debt peaked in 2008, and fell until 2011. Last year, it started to increase again, and latest figures put it at 140 per cent of disposable income (the highest value since 2012). The latest update from the Bank’s Financial Policy Committee (FPC) said that the rapid growth of consumer credit posed a risk to banks’ ability “to withstand severe economic downturns”. In the first three years of such a scenario, banks could incur consumer credit losses of about £30 billion (about 20 per cent of UK consumer-credit loans).

Banks had an “obligation to heed these warnings and act responsibly”, Dr Smith said, and he hoped that the Government would “step in to regulate if needed”.

He welcomed the Government’s consultation on giving people with problem debt a six-week “breathing space”, confirmed last month.

His speech highlighted the work of Christians Against Poverty (CAP) — which had reported that one in ten of its clients had previously attempted suicide, and that two-thirds had skipped meals — and the Church of England’s efforts, including support for credit unions, and a financial education programme for schools.

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Responding, the Conservative minister Lord Bates spoke of government reforms, including the creation of the FPC and the cap on payday lending. He praised the work of CAP as “quite extraordinary”.

Charity criticises tax burden. “Disturbing individualism” in the UK’s tax system was condemned by the chief executive of CARE this week, at the launch of the charity’s latest analysis on the taxation of families.

The report, The Taxation of Families: International comparisons 2016, suggests that the tax faced by one-earner married couples with two children on the average wage is 20-per-cent higher in Britain than in the rest of the OECD. They pay 70 per cent more tax than a comparable French family, the research indicates; more than twice as much as in the US, and 15 times as much as in Germany.

The trend is in a downward direction, however. The 20 per cent figure is lower than in previous CARE reports, which put the figure at 25 per cent in 2014, and 45 per cent in 2012 (News, 14 March 2014).

The report was launched in Parliament on Tuesday by the Bishop of Chester, Dr Peter Forster, who in previous years has warned of a “persistent tendency to marginalise children and their parents financially”. It suggests that the marginal tax rate is 73 per cent for one-earner married couples with two children on 75 per cent of the average wage. This means that, when such a family increase their incomes, they will only get to keep 27p from every additional £1 earned.

The tax burden on a single person with no children on average wage was nine per cent less than the OECD average, it found, and 18 per cent less than the average for the 22 EU countries that are OECD members.

“The problem we have identified is that our income-tax system takes no account of family responsibilities — be they to a spouse or children — placing this burden almost entirely on the benefits system,” the chief executive of CARE, Nola Leach, said.

CARE is calling on the Government to abandon plans to spend £4 billion on raising personal allowances (the amount that can be earned before being taxed), and instead “significantly increase” the marriage allowance for those with dependants, while moving towards a “fully transferable marriage allowance” for all married couples in future years.

The current Marriage Allowance, which first came into effect in 2015, allows people to transfer £1150 of their personal allowance to their spouse or civil partner, if they earn more, reducing their tax by up to £230 a year. CARE would like the entire allowance to be transferable.

Last year, the Bishop of Worcester, Dr John Inge, cited CARE’s research in a House of Lords speech that backed calls for a 100-per-cent transferable allowance. 

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