6 March 2018

Jubilee Debt Campaign seeks £40bn write-off of consumer borrowing

Charity behind Drop the Debt initiative in Latin America and Africa turns attention to Britain

The charity behind the Drop the Debt campaign to help developing countries stuck with problem borrowing is turning its attention to Britain, calling for government action to write off as much as £40bn in spiralling consumer debt.
The Jubilee Debt Campaign, famed for its association with Bono, Bob Geldof and Muhammad Ali in aiding African nations at the turn of the millennium, is launching a campaign to cancel the debts of struggling British consumers in one of its first-ever drives in an advanced economy. The move comes as household borrowing returns to levels unseen since the financial crisis.
The group is working with the Centre for Responsible Credit thinktank and will hold an event in parliament this week with the actor Michael Sheen and the Liberal Democrat peer Lord Sharkey to make the case for a write-off of household debt .
Personal borrowing on credit cards, loans and overdrafts has reached £239bn, while interest rates set by the Bank of England are expected to rise this year. Households have also come under increasing pressure from low wage growth and rising inflation since the EU referendum, with as many 8.3 million people in the UK now facing problem debts.
“A [write-off] is essential if we are to tackle the UK household debt overhang and right the injustices faced by low-income households,” the campaign group said. It will focus on “unjust debt”, which it defines as borrowing causing harm because it either traps people in debt, causes material deprivation or is exploitative in nature.
The intervention by the Jubilee Debt Campaign will be seen as significant because it has typically focused on developing countries in the past, having helped 35 highly indebted nations in Africa and Latin America cancel about $130bn (£94.2bn) of borrowing since 2000. The charity takes its name from the Old Testament concept of “jubilee” – a periodic celebration when debts were cancelled, slaves were freed and lands were returned to their original owners.
Proposing a package of measures to help the poorest borrowers, the campaign is calling for banks and credit card firms to modify their existing agreements to reduce the level of repayments and charges to a maximum of 30% of a person’s income if they are stuck with problem debts.
Some of the cost would be borne by the lenders to “penalise irresponsible and exploitative lending practices”, though the campaign also said the state could shoulder some of the burden, possibly through instructing the Bank to use its quantitative easing scheme to finance the writeoff.
The move comes after the City watchdog introduced new rules last week that could save struggling credit card holders up to £1.3bn a year, though only after they had been stuck in persistent debt for 36 months.
The Financial Conduct Authority said more than 3 million UK credit card holders were in “persistent debt”, and typically handed over about £2.50 in interest and charges for every £1 they repaid of their borrowing.
Other measures put forward by the Jubilee Debt Campaign and the Centre for Responsible Credit include the government buying up and cancelling loans that banks sell to secondary debt management firms, as well as capping the cost of borrowing similar to the rules introduced for payday lenders.
A cap on the cost of credit would force lenders to write off amounts owed where a consumer has already repaid 100% of their borrowing in interest and charges.
Such a change has already won favour from Stella Creasy, the Labour MP who was pivotal in pushing for the payday industry limit and who used a debate in parliament last month to call for further controls to help people struggling with credit card debt.
The Centre for Responsible Credit estimates the total amount of interest being paid by households on their consumer borrowing is currently in the region of £21bn per year – broadly the same amount as in 2008 – but that families are facing increasing pressure from rising inflation and sluggish wage growth.

 

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