What is the Liberal Democrat Manifesto offering to people in debt?
by Laura Rodrigues, Senior Public Policy Advocate
Today the Liberal Democrats launched their 2017 General Election manifesto.
Which of their proposals will help those struggling with problem debt?
Levels of problem debt and financial exclusion
The Liberal Democrats highlight some important statistics related to problem debt (pg. 44), including:
· Around 8 million people are over-indebted
· 40% of the working-age population have less than £100 in savings
This echoes our research that shows over 9 million people are showing signs of financial distress and 2.9 million are facing severe problem debt.
Recommendations to tackle problem debt
To tackle this, the Liberal Democrats commit to taking forward the recommendations of the House of Lords Select Committee on Financial Exclusion (pg.45) to help families struggling with problem debt.
From our perspective, the main calls from this Committee were:
1. The recommendation that the Financial Conduct Authority (FCA) should regulate to limit and manage the negative impact of unarranged overdraft charges.
The charges and interest associated with overdrafts can push vulnerable families into problem debt and exacerbate their financial difficulties. We’ve called for a cap on the maximum amount that banks can charge their customers for going over their overdraft limit.
We’ve also proposed that banks should be doing more for those in persistent overdraft debt, by identifying where they’re struggling and offering them affordable ways to repay.
2. The Committee recommended that the Government and FCA should take action to combat financial exclusion caused or exacerbated by high-cost credit.
We’ve long campaigned for further effective action on high-cost credit. The recent regulation to the harm caused by payday loans, including the price cap, was welcome and has to a large extent been effective. However, there are other high cost products causing harm to struggling households.
For example, rent to own agreements can see hard pressed households pay more than double for household goods compared to those who can shop in mainstream outlets. Logbook loan borrowers can end up repaying substantial amounts and still see their car taken away.
We’ve called for the extension of the ‘total cost cap’ principle from payday loans to other high cost credit products, to protect borrowers from excessive costs.
We also think there needs to be legislation to bring archaic logbook lending up to modern standards of consumer protection. There also needs to be more alternatives to high cost credit for financially vulnerable households.
3. The Committee welcomed the Help to Save initiative and encouraged the Government to take account of suggestions for improvements to this scheme ahead its launch in April 2018.
We agree with the Committee that greater access to ‘rainy day savings’ is essentially to building financial resilience among lower income families. The Help to Save scheme will go some way to addressing this but this is expected to reach around 500,000 of the 3.5 million people who would be eligible.
We want the next Government to tackle this anticipated low take-up of Help to Save and ensure all those eligible have a strong financial buffer.