How to solve a debt crisis through policy solutions

Credit: Hilary Powell

It is now commonplace to hear about the problems high levels of debt are causing. Whether in relation to state austerity, housing, student tuition, local government funding or corporate borrowing, debt is causing harm in various forms, including financial crises, mental health problems, evictions and growing inequality. If you listen more carefully though you will also start to hear voices proposing solutions to these problems. Even more hearteningly, these solutions are now starting to be heard in policy forums and institutions that have the power to make a difference.

The Institute for Global Prosperity’s Financing Prosperity Network (FPN) coordinates people and organisations to raise awareness, bring fresh thinking and drive innovative and sustainable solutions to debt. Through collective conversations and partnership, the network focuses on the alternatives that allow both the better management of existing debt problems and how to flourish beyond debt. In autumn 2018, with support from UCL Public Policy, the FPN held an e-conference, Payback? Co-ordinating Solutions to the Debt Crisis to develop a range of concrete solutions for dealing with problem debts.

The underlying causes of problem debt include low pay, mental ill-health, housing precarity (due to the high cost of housing and rent) and evictions. They are compounded by short-term high-cost credit (or what is more commonly known as payday lending) and overdrafts from mainstream banks and building societies, which are poorly regulated and have punishingly high interest rates. Dealing with these existing debts requires interventions in a number of areas. Based on research on digital devices and debt that shows 80% of payday loans are now accessed through smart phones, James Ash proposes a night-time curfew on app-enabled borrowing. This proposal links to an expansion of breathing spaces, something Leila Dawney has also suggested using the example of Scotland’s Debt Arrangement Scheme. Such schemes offer struggling debtors a temporary break from repayments so they can deal with the causes of their debt. Matt Wilde argues that housing precarity might be solved through greater local authority control over rent caps, improving the provision of housing benefits and ending ‘no fault evictions’. In South Africa, research by Deborah James and campaigning by activist organisation Black Sash, has led to legal challenges of practices through which debt repayments are forcibly reclaimed by creditors through the social grant system. Jodi Gardner points out that legal responses only get us so far. However, expanding access to bankruptcy, which as Joe Spooner points out, has become increasingly harder in many legal systems, offers another potentially more permanent solution.

Ryan Davey foregrounds how people are already addressing indebtedness through forms of refusal — everyday practices that put off or avoid repayment. The End the Debt Trap campaign, led by the New Economics Foundation, demands that interest rates and charges on all forms of consumer credit should be capped. Artists Dan Edelstyn and Hilary Powell opened Hoe Street Central Bank, a political and economic education project that resulted in the cancellation of £1 million of local predatory debt. Johnna Montgomerie goes even further and has propose the abolition of household debts in the UK and USA through a bailout similar to the one the financial sector got following the 2008 financial crisis. This call builds on the work of Jubilee Debt Campaign and their ongoing work to persuade governments to cancel the debts of some of the world’s poorest countries.

Alternatives modes and forms of lending are needed too. We are beginning to see values-led alternatives emerging across the world, such as Credit Unions, which work towards the mutual benefit of their members, offer communities a different kind of debt relation. CreditU, a digital platform created by Lindsey Appleyard and her colleagues, directs users to local credit unions and provides accessible financial information. Another emerging values-led alternative is regional banking. The Royal Society for Arts and the Community Savings Bank Association are leading a move to create 18 regionally focused, mission-led UK Community Banks, including Avon Mutual and Greater London Mutual.

Yet there is much more that could be done. Tim Hall argues that universities can lead on critical financial inclusion, by providing students access to affordable credit. Research by Sohini Kar and Lucia Michelutti reveals that new kinds of microfinance, which recognise the real risk borrowers face, are urgently needed in countries like India. Underpinning all these ideas and practices are efforts to enable people and communities to navigate finance in ways that allow them to prosper. As Sam Kirwan points out, advice services play a crucial role here. While forms of advice vary considerably, work done by social enterprises such as Money A+E seeks to build and empower community networks from which individual debtors are often cut off.

Dealing with existing debts and amplifying more ethical forms of credit provision will only succeed if they are tied to broader forms of progressive change. The work of Plataforma de Afectados por la Hipoteca (Platform for People Affected by Mortgages) to stop evictions in Spain and the use of Citizen Debt Audits in the UK by Debt Resistance UK/Research for Action are examples of bottom up initiatives that reclaim debt through expanded democratic participation. The Institute for Global Prosperity, UCL, are developing a proposal for Universal Basic Services, which will transform the provision of public services and eliminate the need for debt in many circumstances. Based on her research in Mongolia, Rebecca Empson suggests that facilitating more equitable forms of temporary possession might offer hopeful alternatives for a different kind of world.

The Financing Prosperity Network will convene again in September 2019 to discuss many of these solutions and what’s needed for policy at a one-day symposium. They will then be disseminated more widely through a freely available book. Much of what is proposed by members of IGP’s Financing Prosperity Network is simply common sense, when viewed through the lens of the complex values that actually constitute societies. While some may think that these solutions are wishful thinking, policies that are in motion can be contested, but they will require political will, policy leavers and a more hopeful economic imaginary than we have had to date.

Dr Christopher Harker, is a Lecturer in the UCL Institute for Global Prosperity.

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