Opinion: The Debt Trap

3D Shackled DebtYesterday I attended the launch of the Children’s Society‘s ‘The Debt Trap’ campaign, coinciding with the publication of their accompanying report, produced with Step Change, the free debt charity. Some of its findings are truly shocking and should give us all pause for thought. In one of the richest countries in the world 2.4 million of our children are living in homes with problem debt with an additional 2.9 million families with dependent children having struggled to pay their bills over the past 12 months. 1 in 5 of those children living in households with problem debt report being bullied and half report feeling embarrassed about not having the things their peers have.

For me the most challenging part of the presentation yesterday was a powerful video telling one child’s experience of the impact of debt in her family. This, coupled with the experience of actor Brian Cox, who talks movingly about the scar that poverty and debt have left on his life, demonstrates just how urgently we must tackle this scourge in our society.

As Liberal Democrat we believe that ‘no one should be enslaved by poverty’. This noble aim – reflected in our commitment for all children to have the best start in life through the introduction of the pupil premium, is unquestionable. However, this report demonstrates starkly why that is not enough, why our policies for families and children must be holistic and joined up if we are to make that lasting change we all long to see. If a child is missing school because of breathing problems caused by damp, or is having their schooling disrupted because of being evicted – the pupil premium loses its impact. And free child care will only help if you can find a job, but again is of little help if your housing benefit is cut correspondingly because it is treated as income. This report also, importantly, documents the impact problem debt has on children’s schooling – nearly a quarter of them saying they are unhappy about their school as opposed to 14% of all children. It also impacts on their ability to participate in educational activities, their ability to concentrate, complete homework and form positive relationships with their peers.

As I know from my work on the FSA Financial Capability Strategy, debt has an unquestionable impact on mental health – up until now we have tended to ignore the impact it also has on the mental health and well being of children. This report tells that depressing story, 58% of these children say they worry about their family’s financial situation.

The report concludes that there are measures central and local government, creditors and third sector organisations, could take to help address this problem. These include giving struggling families breathing space – an extended period of protection from default charges, mounting interest, collections and enforcement action – ensuring local authorities have a debt collection strategy which includes measures to address the impact of collection on children. Also expecting creditors to have early warning systems in place so they are aware when customers are facing financial difficulty. I know that many charities and housing associations are really worried about the impact the introduction of Universal Credit will have on some families, the report therefore recommends allowing families to opt in to alternative payment arrangements. There are also serious concerns about how children learn about money management and debt – only 1 in 5 having learned anything at school (something I hope is changing through the introduction of financial education into the national curriculum and the excellent work of pfeg), while over half say they see advertising about loans often or all the time – an argument for tighter advertising regulation.

This is a hugely important campaign and one I hope we can all get behind. I for one will do all I can to support it. We often say a society should be judged on how it cares for it’s most vulnerable – this report demonstrates that the answer is – at the moment – not that well.

* Linda Jack is a former youth worker and member of the party's Federal Policy Committee.

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This entry was posted in Op-eds.


  • Eddie Sammon 9th May '14 - 6:04pm

    Thanks for the article. I no longer have a bank account due to debt, so why don’t I like the sound of these proposals? It is not because I read Adam Smith one day and decided to be ideologically against the left, it is because I want to become self-reliant again and the left keeps making it more expensive to set up my old business. Once you are in business, the left still seems to constantly make it more difficult for you.

    I want to alleviate suffering, but the left needs to learn to love small business, then perhaps my ears will be more open.

    Best wishes

  • Richard Dean 9th May '14 - 9:26pm

    Realistically, there’ll always be some families in debt, no matter what practical proposals are implemented, because the goalposts will move – the posts for those in debt, because if credit is available there will be people who use it to the max without planning ahead, and the posts for those wishing to help.

    It might therefore help to put this debate in perspective if a realistic assessment could be included of the expected percentage or numbers of impossible-to-help families. Or if some form of cost could be established as a function of indebtedness – cost might include repayment of the present debt, assistant to stay out of debt, monitoring, etc.

  • We need a radical rethink of credit, its conversion into debt, and the permanent, crippling cost that imposes on people and businesses.

    The ridiculous state of house prices is the only evidence you need.

    UK political parties are not paying serious thought to this terminal issue. Please stop messing around.

  • Helen Tedcastle

    “As Lib Dems we know that social policy has to be joined up, so plentiful and affordable social housing is essential as is a fair benefits system.”

    That should be: plentiful and affordable housing is essential

    The obsession with social housing distracts that it is an increase in availability and a fall in cost of all housing that is needed.

  • sg

    Credit is debt.

    Also it is not the availability of credit which has caused the insane cost of housing, it is the lack of supply. We need massive increases in building.

  • Eddie Sammon 10th May '14 - 10:34pm

    Psi, we usually agree, but if the availability of credit didn’t have an effect on housing then the big building companies wouldn’t be so afraid of a rate rise. The problem is too cheap credit as well as a lack of housing. I know the scare stories from the banks that if you raise interest rates they’ll pass it onto mortgages and if they don’t they’ll go into a death spiral, but I just think it needs to be tried. It’s bad taste when they are saying they are so skint yet paying massive bonuses.

  • Eddie Sammon 11th May '14 - 3:06pm

    Linda, my point is that being anti-business isn’t necessarily what people in debt want. They/we want to work ourselves out of it too. The barrage of consumer rights and regulatory fees help keep people in debt. I think you’ve got to talk about pro-work and pro business proposals too.


  • Eddie Sammon 11th May '14 - 3:09pm

    Or rather than “being anti business” I should say “anti-business proposals”, but I’m just trying to explain why someone quite poor doesn’t feel that the left is on their side.

  • Eddie Sammon

    I should have been clearer, I don’t believe the availability of credit is the main driver. The availability of cridit has an effect and the price (which does not have as much of a relationship as it should to availability) have an effect but the largest factor has been the severe restriction in supply of housing (espesially housing people actually want). The supply has many factors effecting it all of which seem to be ignored by governments at the moment.

    A fall interest rates as we have seen will tend to result in a rise in prices in a sticky market (which housing can’t help but be) but what we have seen is far more than that, showing the bigger factor is the supply side.

    I do agree a rate rise is needed, even if a small one (25bp) to signal that the movement will be back in that direction, and hopefully wake up the lenders to the comming larger rises down the line.

  • Eddie Sammon 12th May '14 - 12:18pm

    Hi Psi, we broadly agree here. Although, I think the Bank of England could raise the base rate for some banks and not the more financially vulnerable ones. This is my own idea and I am surprised I haven’t heard it from anyone else. I’m going to put the feelers out and see if anyone with more credibility can back it! Let me know if you’ve ever heard of such a proposal!

  • Eddie Sammon 12th May '14 - 12:31pm

    Sorry, I was thinking the other way around – raise interest rates for the riskier banks, just like the way bond yields work. It belongs in another thread, I’m just keen to find a major economist who is thinking what I’m thinking! 🙂

  • Bill le Breton 12th May '14 - 12:36pm

    “I think the Bank of England could raise the base rate for some banks and not the more financially vulnerable ones”

    Eddie, have you never heard of arbitrage?

  • Eddie

    I think there could be some concern over the Building Society Sector as they have very few avenues to raise capital and could find lots of them in teh vunerable capital, I inagine that would cause lots of resitance.

  • sorry that: “teh vunerable capital”

    should have read: “the vunerable category”

  • Eddie Sammon 12th May '14 - 12:51pm

    Hi Bill, I don’t see how arbitrage would be an issue. I could go on, but I want to keep on topic (the effect of debt on individuals and children and what to do about it.).

  • Back on Topic

    One action could be to be more restrictive in what is allowed in terms of activity to collect debts. Providing a more effective protection from the barrage that firms make to defaulting customers.

    It would raise the credit risk and therefore potentially reduce availability of credit but that is a trade-off that needs to be judged.

    This proves could get legitimate 3rd parties (the NFP organisations) involved earlier, and make things clearer for the weaker side (the borrower) as currently the knowledge rests on the lenders side.

    Education is important but we should not ignore that just providing information does not stick with most people. People learn from actually doing the right things as these stick more effectively which is something very difficult to teach. No matter how good education is there will still be a lot of work at the back end.

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