At a debate hosted by debt advice charity StepChange and think tank and The Smith Institute, a clear consensus emerged that the credit market needs to change. The Smith Institute published a report in November 2013 entitled ‘Tomorrow’s Borrowers: Personal Debt by 2025’, suggesting that the UK’s debt problem is set to get much worse over the next 12 years. Peter Tutton, head of policy at StepChange and Lord Wilf Stevenson, chairman of StepChange, contributed extensively to the report.

In its press release accompanying the report, the Institute said: “This new report suggests that urgent action is needed to stop the UK sleep walking into a major personal debt crisis.” The Institute called on the Government to increase awareness of the risks associated with high cost credit, and to provide genuine incentives to save.

The report goes on to say that 25% of UK households consider themselves “burdened by debt.”  A series of wide-ranging recommendations follow, such as:

  • Ensuring that welfare reforms do not push people into debt
  • Improving financial literacy
  • Increasing the supply of housing
  • Encouraging employers to pay a living wage
  • Ensuring effective regulation of consumer credit

Stella Creasy MP, the Shadow Minister for Business, Innovation and Skills and a vocal critic of payday lenders, said in the debate: “Between travel costs, living costs and housing costs, it’s not hard to see why so many people have too much month at the end of their money.” Ms Creasy went on to say that the squeeze on living costs trapped people in a debt cycle, where they had to roll over debts or take out new loans to pay off previous ones, a problem that was compounded by the high cost of some forms of credit.

Much mention was made of the need for education on debt and other financial matters, and Barclays was praised for its Money Skills sessions in schools. Catherine McGrath, managing director of Transaction Product and Mass Market at Barclays, said: “The Smith Institute report supports the need for banks and others to continue working with free debt advice.”

Many of the contributors agreed that the introduction of real time credit monitoring was imperative. Ms Creasy added: “Lenders draw up contracts but aren’t complying with the terms they set out, and charge at rates they know their customers can’t afford because they are protected by the claim that they didn’t have access to the necessary information. It is our duty as regulators and citizens to change the system.”

The most obvious change to the credit market in the coming months is the transfer of regulation from the Office of Fair Trading to the Financial Conduct Authority. New requirements for firms will include limits on rollovers and use of continuous payment authority, the need for risk warnings on promotional material and more rigorous affordability checks. The Government has also announced that the total cost of credit will be capped. It remains to be seen what other changes will occur in the credit market in the coming years.