The Great Debt Debate

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Speaker key

UF Unidentified female speaker/s
Presenter Karen Witchalls
CH Chair, Mr. Peter Hobday
JF James Falla
EP Eric Pentecost
MG Melanie Giles
MH Mark Hoban
VC Dr. Vincent Cable
KW Keith Whincup
AB Anne Belsey
UM Unknown male speaker/s
IG Ibrahim Ginesh

Presenter: To start, could I just ask that you have all turned off your mobile phones? I don't want any beeping or tunes going off. Well, a very warm welcome and thank you very much for joining us today at this key event of IVA.co.uk's Debt Awareness Week. I'd now like to hand you over to our chair for the morning, Mr. Peter Hobday.

CH Thank you very much indeed, ladies and gentlemen, and welcome here. I'm glad you all found this place. I got lost this morning. We have a very distinguished card who have also found their way here. I'm going to introduce them one by one and I'm going to ask each of them to say what they think is maybe the big issue that faces the country and individuals in terms of debt and all the rest of it. I've got a couple of figures here. One in five people in the United Kingdom, and that's 8.5 million have unsecured debts. In other words, they've got '10,000 and they've got pretty well no way of paying it back ' one in five people. That's just one of the fairly worrying statistics and the Department of Trade back in November last year actually reported a 63% increase in personal insolvencies. So we have, I think, a sort of national problem as well as a personal problem. Those are just some of the statistics to bear in mind. Let me just introduce the card and after that I want to go to you and hope you will all ask as many questions as possible and I'll try to get the right person or the right person will offer themselves to answer those questions. I'm going to start right at the far end there with James Falla, who is a debt expert. Ten years experience as the MD of a debt consultancy and you often probably have seen him also on the BBC talking about it. James, what would you say was the big issue is as far as you're concerned?

JF First of all, good morning. I would say that the number one issue on my mind is increasing public awareness of how easy it is to get into debt and the difficulties people can face if they do get into serious debt, which they can't repay. One of my big issues is trying to ensure that more people understand those problems and then, hopefully, don't get into a situation where they can't repay the debt that they owe.

CH Thank you very much. Sitting next to James is Professor Eric Pentecost, professor of economics and programme director for MSC in economics and finance at Loughborough University. He used to be at the Bank of England. He's a number cruncher. Eric, from an economic perspective, what do you think is the big issue?

EP My perspective on debt as a macroeconomist is that it isn't really an issue at all because the aggregate household sectors assets far exceed their liabilities. So in a strict accounting sense there is no debt issue or no debt crisis. The problem of course is it's not so much the actual level. It's the distribution within that population and, as you said, some people in the household sector are very much heavily in debt. On the other hand, there are a lot of other people in financial credit.

CH So the nation shouldn't worry. It's the individual.

EP Indeed.

CH Fine. Thank you very much, indeed. Now, sitting next to the professor, Melanie Giles who's an insolvency practitioner. I know we've got some sixth form people here studying insolvency so what you'll have to say is going to be of particular importance to the next generation. What do you think is the big issue, from your perspective?

MG Thank you, Peter, and good morning. I'm an insolvency professional. I've been working with consumer debtors for a number of years. We have to appreciate that when banks lend money on an unsecured basis they're taking a risk and things are going to go wrong. People like me step in to try and address that issue when things go wrong and the key issue for me at the moment is finding a solution that is actually tailored to deal with consumer debtors and understand the needs of the consumer as opposed to businesses. I hope we can explore that later on today in the debate.

CH So if I'm in debt you're on my side, not the bank's side?

MG I think we're on both sides, Peter. We just try and make both sides come into the middle and work on a solution.

CH Thank you very much. We've got two senior politicians with us to give us their perspective because, in the end,quite often this becomes a political issue. Sitting next to Melanie, Mark Hoban, who's the shadow financial secretary to the Treasury. Of course you're also a chartered accountant but you're also a Tory. Maybe the two go together. Mark, what do you think is the big issue?

MH Peter, thank you. I think what is important is to ensure that we have in place a range of tools to help people manage their debt so that people understand the consequences of taking out loans or credit cards and when the problem becomes too great that the right solutions are in place to help them get out of that hole.

CH Thank you very much. Finally, Dr. Vincent Cable, Shadow Chancellor and Liberal Democrat.

VC My basic perspective is I think the problem is more serious in aggregate. It's not just a problem for individuals. I disagree with the Professor on this one. The conventional view, the Chancellor's view, is that there's a problem of some individuals, two million in serious trouble, four million struggling but we're still talking about less than 10% of the population. I think the problem is serious in aggregate. Three quick points. First, the servicing of debt, which according to the OECD is now approaching 20% of income. If you include credit card repayment it is historically very high. The household balance sheet position is not as strong as it appears because all the assets or most of the assets are property and there's a very volatile market. We've been through a period of strong economic growth with full employment. A period of economic downturn would completely undermine the assumptions under which many people's borrowing optimism is based.

CH How far are we from the precipice?

VC Well, I don't describe it as a precipice but I think it's entirely plausible that within two to three years you could have a much more negative outlook than we do now.

CH Thank you. Just the time we change governments really. Questions?

KW My name's Keith Whincup. I'm from an organisation called SAFE, which is Struggle Against Financial Exploitation, and we're also the secretariats of an all party parliamentary group which is also Struggle Against Financial Exploitation, headed by Lord Ahmed and Alan Keen and Vincent Cable is a member of that group. I've just listened to the professor. Yours is a typical Bank of England type response that there are more people with equity than there are without. It's just funny that I noticed in the paper today that house repossession has gone up 65% in a year. How long before it actually turns the corner from your number crunching because people won't be in equity if they keep getting their houses repossessed and then, of course, if they've gotten repossessed then you come along, usually do the job for them, make people bankrupt. Perhaps we could cure credit that way because then they can't get credit again.

CH Your point is that, in a sense, the experts need to look really at the individual rather than the great big numbers?

KW No, I think the problem with the experts ' and, believe me, I've been dealing with them for quite a lot of years as I've been a director of SAFE since 1993, when I lost my business ' is that they only look at figures. They do not see the human part or the human misery that goes along with it.

CH You think the experts are a waste of space?

EP I should make it clear that I don't actually work for the Bank of England anymore. I've obviously got friends in the bank who [unclear] that view. I take your point entirely. My statement was definitely provocative, in a sense. I've only looked at the numbers, as you say. Household sector, assets, so many billions. Liabilities, a few less billions. There's clearly a surplus. Now, two points you make. First of all, a lot of that debt is secured debt. 83% roughly is secured debt based on mortgages, based on property values. Now, should house prices take a fall, as they did in the early 90s, then this nice position could very soon become very dodgy, very difficult. They could be forced into negative equity and so on. I fully accept that. On the other side, the unsecured loans, I think it's about 15% to 17% of total debt that is unsecured ' credit cards and bank loans. In a sense, it's a small number but, equally, I wouldn't want to play it down. There are people who have got access to credit and they've well exceeded what they should've taken and are in serious trouble. I'm not denying that.

VC Let's start with those repossession numbers and see what significance they have. Of course, at first sight it's very small - I think 0.01% of the market - and it seems trivial but, actually, it's much bigger than it appears there are, I think, six times as many actions that are being started in the courts that have currently manifested themselves in repossession. The key point to me is that there are no safety nets. The mortgage insurance market doesn't work and most people are now withdrawing from it anyway. The government doesn't offer safety nets because there was a little noticed change in the social security regulations and if you are made redundant it now takes, I think, nine months before you get any help from benefits. So if you get in arrears on your mortgage, you get into trouble with the bank, there is no help. You're on your own.

JF I think that the number of people who are actually declaring themselves insolvent in this country at the moment, as a proportion of the country, could be argued to be relatively small but I think it is absolutely right to say that a lot of people are walking a tightrope. A lot of people are walking on the edge of disaster because, despite all the warnings and people saying you shouldn't overextend yourself and don't take too much on the mortgage, we're now seeing mortgage lenders offering five times income and people are extending themselves considerably and we are going to see increases in interest rates over this year. Nobody knows exactly how much but I would predict probably 0.5% by the end of the year wouldn't be unlikely. So you are going to see many, many more people who at the moment are just managing. They are going to be tipped over the edge and that's the problem we're going to have to be facing.

MG And whilst we have a banking system that is still very prepared to lend and we have a consumer system, which is very prepared to borrow, this is going to continue. I find, with the majority of the clients that I see, a complete lack of financial awareness of what debt is and what money is and I think we're losing the value of what money and what owing a debt actually is.

CH You're saying as the banks continue to lend and the financial services continue to lend. Is it that they, in a sense, are being as irresponsible as the people who borrow too much or am I really going up the wrong track in trying to have a sort of blame game?

MG I think there are blames on both sides, Peter. There definitely is irresponsible lending but there definitely is irresponsible borrowing. The banks are in a very competitive marketplace. There are a lot of new entrants coming into that consumer lending marketplace and while that's there people are going to take advantage of it and I think in the younger generation ' we were talking about this earlier ' the awareness to what owing a debt is or saving up for something that they want to buy is just disappearing.

MH I think Melanie's right. There's a change of people's perception of debt but I think it's very easy to become quite gloomy quite quickly about the situation. I think, yes, there are people who are close to the edge but recent academic research has demonstrated actually there isn't a high proportion of people in debt who are in that margin and even 0.5% increase in interest rates won't necessarily lead to thousands of people tipping over into insolvency and financial problems. I just think we need to get the problem into perspective a bit and not be as gloomy about where we are. Debt is quite a key part of the economy. People do borrow and lend responsibly. Some people do actually make the wrong decisions but I think we need to get it all in perspective rather than be too negative about where we are.

CH This is one, really, for the two politicians. The political response to this would presumably have to come if it does become a crisis but you can't just turn it off, can you, because that would actually provoke an even worse situation. How do you prepare for, in the jargon, a soft landing if suddenly house prices are beginning to fall, interest rates are going higher and all the rest of it and the sorts of numbers that Eric was talking about it then becomes an absolute political problem? What do you guys in the House of Commons do about it? What do you counsel?

VC In the House of Commons, of course, we're one step removed from financial regulation because it's now done by an autonomous agency, the FSA. So we don't actually have direct access to the mechanics of financial regulation. I think there are two things that we should be thinking about on the regulatory front. The first, which you've already hinted at, is at the moment there is virtually no constraint on lending. It's very easy to lend money. There is active debt promotion. On the other hand, if you want to invest a bit of money, you have an extremely complicated difficult time consuming regulatory practices. There's a terrible imbalance between the regulation of saving, which is very heavy, and the regulation of lending, which is virtually zero. I think the other issue, which is a technical one but one does have to grasp, is that at the moment the only management of the financial sector is through interest rates. There are complicated procedures under what's called the Baal [?] rules which governs the amount of capital that banks have but that isn't being used to manage cycles up and down. It's entirely passive and is actually contributing to the problem.

CH Obviously Baal is the Swiss city where all the central bankers meet.

VC It is an international protocol under which banks have to keep a certain amount of capital in order to protect themselves from insolvency but this is not used to manage the cycle of the property and other markets and, arguably, it should be.

JF We're talking a little bit here about banking and banking responsibility but I also think it's important not to lose sight of the personal responsibility we have in terms of borrowing money and it's very easy, and people in this country seem to be going down the line of it's not my responsibility, it's not my fault but I think we need to keep in sight that you are not forced to borrow money. So a certain amount of personal responsibility and personal restraint is going to be part of the solution to a problem, whether the problem is now or impending.

CH It's easy to say that but, at the present moment, if I go to my bank and if I ask for '50,000 and they say sure, sign here, have I been really irresponsible? Shouldn't the bank, in a sense, if it's protecting its shareholders' money, its investors' money, its depositors' money say no way, Hobday? In other words, shouldn't they be exercising the restraint because they're the professionals, they've got the advisors, they've got all the rules, they're on the stock market? Just because I'm being irresponsible'

MG They certainly should take steps to make sure you can have a good chance of paying the money back. I'm not convinced that that actually happens.

AB Good morning. My name is Anne Belsey, the leader of the Money Reform Party, which was founded about two years ago to educate the British people and their politicians about the nature and origin of the money supply. We now have a situation where 97% of the country's money supply is created as a debt. Without the debt we wouldn't have any money. The economy wouldn't function and, of course, the debt raises charges of interest, which means that the debt is actually growing faster than the money supply. Given that, we're facing three possible options, and I would like the card to give me their preferred option out of the three. One is that we can carry on as we are with an increasing level of debt, and it will have to go up. It has to keep going up to avoid number two, which is that we allow the economy to go into a recession that would be even greater than that of the Great Depression in the 1930s. The third option is that we actually replace our debt-based money supply with a debt free and interest free money supply created by a public authority for the benefit of the public purse. Of those three options which would the card prefer?

EP The money supply or the cash supply, I think, as a not very good macroeconomist, is largely based on public debt. It's not private sector debt, in a sense. It's issued by the government, which in a sense can't default on its payments. In that sense, I don't think it's quite the same debt problem as the household debt problem. The government's debt in this country is fairly low compared to European standards anyway.

AB Household debt is twice government debt. 60% of all the money in this country is backed by mortgages. Mortgages are held by households, not by government.

EP No, the money supply is backed by government bonds.

AB No, it's backed by individual mortgages.

EP No, I disagree.

CH We're going into very arcane economics here.

EP What I would say is I would like to see us carry on as we are. In your three options I'm going to go for the carry on option.

MG With more responsibility on lenders to make sure it's going to work.

EP Maybe that's right, yes.

MG I don't think there's necessarily a problem in having debt but as long as there is a responsible way of repayment. It is the unpaid debt that is causing the problem, not debt generically.

VC There is a sort of long argument in economics textbooks, which I think this relates to, which is about how money supply can be created by governments and governments then attract the senior edge. I don't buy into this but I think there is an important insight here, which is that at the moment in Britain, as opposed to in the European Union, we don't actually keep track of money supply and we ought to. Interest rates are the only mechanism we're using for managing money. The Bank of England should be much more explicitly concerned with the growth of money supply. At the moment money supply is growing very rapidly, but what we're talking about is the expansion of credit and, arguably, in a very unhealthy way. It's all spilling into the property market rather than into normal inflation, but it is worrying and I think we should be focusing on money supply.

CH We could go on for hours but I hope you'll mull over that, and if you want to come back to them later, please do.

UM Hello there. I represent Freelance Artists on the rights side and I don't speak for all of them, but as there is an increasing amount of freelancers in the working market, and obviously self-employed people as well, the freelancers obviously represent a greater problem when it comes to being in and out of work or contracts. We take on a certain amount of debt in between work and contracts and I think I'm safe in saying that a lot of people are prepared to have a lot more debt these days, but we are running a bigger risk as well with our financial management. One of the questions I want to ask is there has been a growth in the IVAs as opposed to bankruptcy and I was wondering if the IVAs are being missold or is this a better solution?

CH It's an interesting question because there's been a bit of coverage about IVAs. Are they good? Are they bad? Should we or shouldn't we? Melanie, would you like to tackle that? Just take the first bit, which is quite interesting. I've been travelling in continental Europe and both in France and in Italy and I've noticed this idea of what they call the precarious nature of employment, that you can be in of work and out of work, and the problems of finance. Just tackle that first and then take the IVA one.

MG The IVA has been with us since the mid 80s so it's not a new product. Primarily it was brought in to deal with people such as yourself, businesspeople, self-employed people. Of late it's been used far more for consumers because the consumer has become far more aware, of it as an option through media coverage, through advertising. Whether there is misselling I don't personally believe there is but there is certainly a lot of media awareness to the option. It is a viable option. The reason there are so many IVAs at the moment is because banks are agreeing to them and accepting them. I think they're a workable solution. They are just one option and we mustn't be advising people that they're the only option.

JF I would add to that to say that it is important to understand that an IVA is not a way of getting out of paying what you owe. So many people may think incorrectly that I owe a lot of money, I think I'll just do an IVA and that'll be great. Actually, you can only undertake an IVA if you truly are insolvent. So if you cannot repay the money that you owe that is the only time when you will be allowed to undertake an IVA and the people you owe the money to, the banks, have to give their blessing and agreement to that. You can't just decide I'm going to do an IVA today and, off you go, I'm going to be in one. That is not the way it works. In my experience, I've worked with people over the last ten years who've had very serious debt problems, and the majority of them do not want to be in that position. They don't want to be going into an IVA and it's not an easy option. Believe you me, trying to repay back as much as you can over a period of five years is living within a very tight budget. It's being dictated to about how you can use your finances because the people you owe money to are saying you have to agree to pay us this much back and you can't waver from that. So it is not an easy option and some people very often mistake the IVA as some kind of magic wand. It absolutely isn't.

CH Can I just butt in because one of the questions was the fact is that if you're self employed, a freelance artist or whatever, and you're in and out of work or you depend on contract work, is the IVA, should you need it, a valid route because there it's not like having a permanent employment. You might well be very rich in the first three months of the year and then have absolutely nothing for the next four months of the year. How does that compute with the restrictions on what you can do or not do under an IVA scheme?

MG IVAs have to be flexible to deal with the individual needs of an individual client. So for somebody who's self-employed there needs to be more flexibility built into the agreement.

MH James talked about how difficult an IVA is but, actually, if you listen to the adverts you hear on the radio about IVAs, it sounds like a very cheap and easy way to sort out your debt, to get rid of all the debts you've built up over a long period of time and it sounds painless. Actually, one of the issues, I think, is that the marketing of IVAs has led to a greater interest in them, that more people have come forward to the IVA factories, these businesses are processing large numbers of IVAs, it's profitable for them and we've seen, only last week, two or three IVA companies have had to issue profit warnings because actually the market isn't as buoyant as they thought. Part of that is because banks are taking IVAs much more seriously but I don't think anyone should be under the impression that IVAs are an easy route out of debt. It goes back to your point, Peter, earlier on about responsibility. The message that comes across from this marketing is that people don't need to take responsibility for their own debts and I think people should take responsibility and they shouldn't be given a get out of jail free card.

VC There are rogues in the IVA market, as in others, but I think the key attraction for many borrowers is, of course, you can protect your home in that way, which is more difficult than bankruptcy proceedings. The IVA companies are now under attack, not from the borrowers but from the banks because they feel they're not getting their share of flesh in all this. That's the brutal reality of it. A final point on the self employed, there has been a very disturbing tendency in the last few years, which I referred to the FSA, of a very, very big increase in income non-verified mortgages. Those are important because it's a way in which the self-employed can get access to mortgage because you don't have to have proof of income but it is being abused by some of the banks to bump up their mortgage lending in rather dodgy circumstances and get around some of the regulatory controls.

CH It seems to me that somehow the banks work with computers and technology and we, human beings, is there a kind of mismatch between that because I can remember many years ago when you could go and see a human being in a bank or the human being called a manager called you in and said, now, look, you're spending an awful lot of money, we've got to do something about this. Now you get a computer generated letter that says unless. Is that part of the problem, that the banks have become so automated, so computerised, so technologically innovative that they forget the human side?

VC Yes, I think some of the banks realise that. They are trying to recreate some of the bank network feel and there has been a reversal of policy on that. It isn't just a question of getting a computerised letter. You now get conversations with Daleks. There is a new practice coming in that if you overrun your overdraft you get a telephone call on your mobile and a Daleks speaks to you and reminds that you have overdrawn.

CH Exterminate your overdraft.

VC Yes, and then you discover you've got a '30 charge on your next bill for the call.

CH Thank heaven I haven't had one of those.

UF I was just carrying on from the IVA. You were saying about how difficult. Therefore, are you just saying it's better to go bankrupt? Is it better then to just wipe out all the debts rather than do the IVA?

CH Bankrupt or IVA? The choice is yours.

JF It's a very good question and the answer to that absolutely depends on the individual circumstances. The first and, as Vince brought up, the primary question is are you a property owner because if you are a property owner and you declare bankruptcy there is a very high percentage risk that you will lose that property. If you undertake an IVA you retain control of the property. You will still have to release money from that property, almost certainly, to give back to the banks but you do still have retention of control in the property. So, very much, if you're a homeowner there is a very big difference. Also in bankruptcy, various jobs are affected ' financial services jobs, accountancy, that kind of thing ' but you are right, and I see it a lot now and it's a big issue, younger people who are starting to borrow a lot of money' We've seen a young guy in our office just this week, 22, 23 years old, owing '50,000 on credit cards. Now, this guy has got no assets. In fact, he's living at home. The best advice to him will be to declare bankruptcy because it would be the swiftest way for him to deal with his problem. Now, he will have effects in the longer term, in terms of his credit rating will be affected over the next six years and whatever else but he's got no property to lose and so I think it would be wrong to say he should be doing an IVA if the bankruptcy is the right thing. Now, he may say, actually, I feel I want to pay as much back as I can and, therefore, I would prefer to go down the IVA route but we're finding more and more young people are not taking that attitude. They're just taking the attitude of, well, the bank shouldn't have lent me the money in the first place so I'm going to go bankrupt and next.

MG It depends how you measure that phrase better off. 95% of my clients probably would be better off financially if they had declared bankrupt. The majority of people that I'm seeing at the moment, James, still have this moral obligation that they want to pay back as much as they can. I don't think the majority of consumers actually go out with the intent of borrowing money that they can't afford to pay back. There are usually good reasons for the debts ' job loss, change of circumstances, death or divorce. People don't intentionally go out borrowing and when things go wrong I find that the majority of people do genuinely want to pay something back, and there is still a social stigma attached to bankruptcy but I think in time, James, another generation and that will go.

CH There's a great deal of advertising, television advertising particularly, about consolidating your debt as if this is a sort of triumphant thing to do. Maybe it is but this whole idea of the happy family and children playing and what have you, the phone rings, how much, 25, thank you very much indeed, thumbs up and the wife goes off singing to the kitchen to make a cup of tea. You somehow feel that this is so glamorised.

MG Consolidation in itself, Peter, is a good measure of budgeting. The problem is that people use debt consolidation to repay a number of debts and then continue to use those original sources. We get into what we call the debt spiral where debts just carry on going up and up. It goes back to my earlier comments about people not really realising the true value of money or the true implications of debt anymore.

CH Somebody once likened it to me as young people these days don't realise that milk comes from cows. It's the same view of money that it automatically comes out of a hole in the wall.

MG It would be interesting to maybe get some comments from these younger members of the audience.

CH I've asked them. None of them are in debt, they tell me. They're looking away from me now.

VC I think what this discussion highlights is the question about who do you go to when you want advice. Who do you ask whether an IVA or bankruptcy or some other mechanism is appropriate? We no longer have fully independent financial advice in the commercial sector. You can go to the CAB but they're difficult to get to and will only deal with extreme cases. The government has promised a rollout of a national financial advisory network on a kind of pro bono basis, but it's not coming till 2012 and that is a big gap in the system.

MH Just to add to what Vince has just said, there are people out there who will advise, not just the CAB. Money Advice Trust, which is funded by a range of organisations from the financial services sector, will give advice and the Consumer Credit Counselling Service, which offers both telephone based and a web based service, to help people manage their money and come up with solutions to their problems. I think one of the challenges facing banks is to make sure they actively refer their clients to those organisations first before they go down the route of approaching an IVA factory.

CH Sometimes, even if you go for advice' Not so long ago I changed my mortgage and I knew what I wanted to do. I had researched it and done absolutely everything but I was told by the mortgage company I went to, that I had to go to an independent financial advisor who then put me in touch with the mortgage company, who told me to talk to the independent financial advisor. I got the mortgage that I wanted and all the rest of it and I got a bill from the independent financial advisor for '1,000. I thought, hang on a minute. I was trying to take responsibility. It's cost me '1,000 to do what I wanted to do with advice that I didn't need.

UM No disrespect to the card but there is no accountability for the banks, lawyers, and the courts. There are so many different organisations. There are 330 parliament acts by the Labour government but it's acts of parliament. We've got 330 acts with nobody to place these acts. It is not just the people who have created their debts and have to pay for it but there are a lot of people, as Dr. Vincent Cable knows ' he's got people in his area as well ' including myself who've never been in debt. I was a respectable person working for Reuters for 20 years before I was made to retire but it's lawyer fraud which has snowballed under this, which is not covered. There must be an accountability before we can address anything. Who are lawyers accountable to?

CH I'm very conscious of the time but you make a very, very good point. The point really is surely it's the professions in the end who are supposed to be the people who know all about all of this who should take much more responsibility. Yes, the individual should. This seems to be the point but you can't keep on saying it's both sides. What are the professions doing? What are the lawyers doing? What are the insolvency practitioners doing? Does he have a point?

JF Part of the problem, Peter, is that there are eight different organisations that regulate insolvency practitioners. It's actually very difficult, I think, at the moment to regulate that sector because of the fragmentation of the bodies. Actually, I think that those organisations need to take some responsibility to get the regulation right.

UM Can I just hand that to the panel?

CH I'm more than happy to hand anything to the panel.

UM There are universities who have done studies on this.

CH The Accountants and Lawyers Laundromat. I have to be careful because my daughter's a lawyer and I have to go home.

UM We can't blacklist all the law agencies but there is no accountability.

CH I'm not trying to cut you off but I'm just very conscious of the time. Can I just go to the chap at the back who's been waiting because you did have a go and I'd like to have as many views as possible? Sir, thank you for your patience.

UM Thank you. Are we investing enough, if indeed anything, in educating young people in personal financial management, taking in mind that not everybody has a natural bent for accountancy but will have to handle money in their lives and, as part of an IVA, would it be helpful to invest money' This is a political problem. Once it's reached the scale that we have now you have a political problem in the country. So we have to be looking at government initiatives to help, at least, alleviate the problem if not cure it. Would it help to have some sort of financial rehab involved in an IVA?

CH That's a nice thought. Thank you for that. I'm not trying to embarrass you but you're doing insolvency as a module. I'm just asking these young people here because they're in the educational system at this moment. Does anybody give you any idea of how to manage money? You're doing insolvency but do they say you should do this? Have you ever had any lessons on managing money? No?

UM Manage businesses.

CH Manage businesses but not necessarily how to manage your own' Nobody's taught you that. Thank you for that.

UF I'm a student from Thames College and, as you know, we have been offered credit cards by credit companies and stuff like that.

CH May I ask you your age?

UF I'm 18 years old.

CH And you've been offered a credit card?

UF Yes. My question is there are at least 100 million unsolicited but pre-approved credit card application forms. As you know, we are going to be in debt soon so what sort of help and support is provided to alleviate the problems?

CH This is interesting because it is education, isn't it, at the end? If my generation and others are already having problems it's the next generation you could say.

VC Things are happening slowly. The level of financial education at the moment is abysmally poor and very patchy. There are some very good operations. The Institute of Financial Education is one, which now do certificated courses, and I've been to some of them and seen them in action in my own area, but they're covering a tiny percentage of the student population and they're mostly kids who, in any event, are going to do things like accountancy. So it's not getting through to large numbers of people at the moment and the government's idea is that you should include financial education in the maths syllabus in order that people learn about compound interest and so on, which is fine but incredibly limited and just doesn't grasp the magnitude of the problem.

MH Vince is absolutely right. There isn't enough coverage in the curriculum for financial education. We do need to educate young people in the same way we need to educate other sections. We've suggested that there should be for 11 to 18 year olds compulsory financial education, as part of the curriculum so young people can understand more, not just about interest rates but actually how to budget, how to look at managing their money and some of the products that are out there. So there's a greater awareness of these issues.

CH Melanie, the other point that the gentleman raised, this idea of some kind of financial course for people who've got into trouble, attaching that to an IVA, it's a bit like if you're had for drunk driving. You go along and have to do an alcoholics sort of thing.

MG Rehabilitation. I think any education is good education, Peter. What I regularly see, which never ceases to amaze me as a practicing IP, is people coming into my office who, A, don't know how much they owe or who they owe it to and, B, don't do the simple maths of what they've got coming into the household, and what they've got going out of the household every month. That, I think, is actually quite frightening. If we're not going back to the old days of Home Economics maybe within schools then I think this problem is going to get bigger.

CH Home Economics used to be how to make your own marmalade and save money on fruit. James, a final thought?

JF Yes, just a final thing on it. We're talking about, obviously, the theme of debt but in terms of education financial education, as has been said, is not just about what you can do and how to avoid getting into debt. It's thinking about if I take a personal loan how much am I actually going to be paying back. The number of people I've spoken to over the last few years who actually can't believe the amount of interest they're being charged and what that actually means in terms of I borrowed '10,000 and when I explain to them that they have to pay '14,000 back they have no idea and can't believe it.

CH I'm very conscious of the time. If I could ask all four of you to be very, very brief. Would the card mind if I did a sort of TUC approach to this and we had a composite? Suddenly the women are moving in. We were talking earlier, it was quite interesting, and Melanie was saying, oddly enough, it's the women who manage money infinitely better than men. They spend more of it but they manage it better.

MG My exact words were that they're more aware of the household budgeting.

IG My name is Ibrahim Ginesh and I study at Tower Hamlets College, BTech majoring in business, and my question was, basically, at the moment total UK debt has exceeded '1.2 trillion. Although it's not visible in the sense that people aren't starving, but it's certainly concerning for young people like myself getting ready to go to university. Getting to the point, graduates leaving university last year had average debts of '13,000 which brings me to the question is it really worth going to university or should you just go out there and work and not go to university.


CH Take that one on board because there's being personally responsible by taking on debt for education, which as Melanie said is always good.

UF You said that insolvency has increased by 63%. Could you please tell me what percentage of this 63 are because of the lawyers and default judgement because I'm not insolvent and I've been made bankrupt by my solicitors when I had more than the debt in cash in my account. I went with a banker's draft to the solicitor's office. They refused it. Courts [?] did not help me to hold that cash or that cheque into account and resolve the problems.

CH In a sense you think the lawyers could have worked in a different way to help facilitate what you needed to do to transfer the money to pay the debts?

UF Or the court could have helped me or the insolvency office.

CH You felt abandoned by the system at whatever point you touched it?

UF That's right.

UF The Financial Services Authority is supposed to be regulating both the lender and borrowers to an effect, yet when I telephoned them and asked them what they do about solicitors that buy huge debts and then make people bankrupt without their knowledge they said, sorry, we don't regulate assignment of debts. Is the card aware of that?

UF I just wanted to ask about IVA fees because not many people are aware that for the first while they're paying back the insolvency practitioner, they're not actually paying off their debt. I wondered what the card thinks about changing that system so that IVA fees are regulated or they get paid at the end of the IVA is successful.

UF At present in the House of Lords the Enforcement Bill is being debated and, obviously, that's going to come down to the House of Commons for debate. Now, this is a very important bill which is dealing with possessions of properties and how the people, when they're being dispossessed of the property are treated by the enforcement agents. I would like the card to spend some time on perhaps deliberating after this debate what can be done to make sure that there is a proper effective remedy against enforcement officers and agencies who abuse their power.

CH Thank you very much indeed. There's a specific IVA question in terms of charges and all the rest of it but two or three of the questions seem to be saying the same thing, that somehow or other the professions, the professionals, even the legal system, seem to have great fun with all of this. I'm putting a deliberately cynical use of the word fun. They're all making lots of money and an individual who's in a terrible situation, like a form of financial bereavement, seems to have no counselling, no help, nothing, is absolutely alone and is chivvied from pillar to post. Whether any of you would accept that as a description of what goes on or if you do accept some of it could anything be done about it? We've got seven minutes left. I'm going to ask you all to, in effect, have a look at these issues and maybe send the audience home with some nice things.

VC Just quickly responding to some of the points. The last question was extremely important. I'm not sure many people are aware of the new bailiff powers that are coming. I've had a question down from Harriet Harmon during the week about this but we didn't reach it. One of the implications is that bailiffs will in future, have the power to physically restrain people as well as forcibly enter their homes. You can just imagine a single mum with three kids. A gang of bailiffs turn up with a legal power from the court to seize property because they've got into council tax arrears. The mum starts screaming. You can sketch the scenario. This is a real horror story and the government's answer to this is we will solve this problem because the bailiffs will be properly trained. Anyway, you should keep your eye on this one. Secondly, the student problem. I don't want to get into a political debate about how we handle student tuition fees, and so we can all score points on that, but I just want to make a more practical point that at the moment the government does not allow student debt to be pooled with other debt data. There is good practice developing amongst banks of pooling their debt information. That's one way of stopping irresponsible lending but the government holds on to student debt data. It won't pool it and this is one of the factors that's contributing to over lending, if you like. Although I'm very critical of the banks, this is something they're not responsible for. A third and final point, which several people made from personal experience, is that whereas financial practitioners, financial advisors for example, are now regulated under financial services legislation, if they missell they can be taken to the financial ombudsman. Solicitors are still, effectively, a self-regulating profession and there are many horror stories, which any MP can tell you about the lack of effective regulation under that system.

MH A couple of things. Just on university, I think one of the issues that we face is that many young people come out of university not just owing money to the student loan company but credit card debt as well. I think that sets a trend almost saying debt is acceptable, we take on this debt and how do we manage that debt once students graduate from university. I think people need to make a more economically rational decision about what they do post 18. I think in terms of the relationship between people who are bankrupt or insolvent and professional advisors, I've had a case recently where I don't think that the professional advisor has actually communicated very well at all with my constituent about why they're reopening a case that is now over ten years old, why they've charged additional fees for apparently not doing very much work and I think there needs to be a much better dialogue between the professionals and their clients so that, actually, people can understand what it is that's happening to them. It's very much at the moment a process they feel is being done to them and they feel as if they're being penalised.

MG Perhaps I can just pick up the point that was raised about IVA fees. Do remember that the IVA fees are actually paid by the creditors out of the monies being paid over to repay creditors. I think the issue on insolvency practitioners' fees generally is not so much one of quantum but one of value for money. The banks at the moment are actually actively looking at this and we, as a profession, have to make sure that we are actually delivering a value for money solution that the banking industry is actually happy with and there is work ongoing on this at the moment.

EP I'd like to pick up on the university tuition fee issue. If the university tuition fees had been in place in the 1960s and 1970s I wouldn't be here. I'm from a working class background with a labouring father who would never have made it. I'm passionately against these fees but let me just give you some rationale behind it. The view is that if you're a graduate you earn substantially more than non-graduates. Therefore, over a lifetime, you can afford to contribute to that education and you can pay back the loan that you borrow when you're a student. The problem, I think, that's starting to emerge is that your ability to pay depends on your ability to get a job afterwards and that depends, I think, on the subject you study and, possibly, on the university that you attend. That's not something I like but I think that's the way things are going. I think also, perhaps slightly more reassuring, the part-time education and part time degrees will become more important as people combine work and study as they do in America.

JF Just very quickly on two points. First of all debt and education. I would say that I think that young people nowadays need to be aware that their education will cost money and people need to now plan for that, understand it and exactly the same has happened as in many central European countries for the last 15, 20 years. I think that if you're going into further education now you have to understand that you are going to get into an amount of debt and you need to plan and work with that. Second, very briefly, in terms of the IVA fees, just to follow up from what Melanie was saying, very, very important, I think, anyone who undertakes an IVA must be under no illusion. There are fees charged by the insolvency practitioner. It is a fact. It is the same as if you have a chartered accountant doing your accountancy books. You will be charged for that but it is very important to understand that the amount that the insolvency practitioner takes is given to them by the bank. Overall, if you're paying back to your banks '30,000 the banks themselves will then have to hand back to the insolvency practitioner a percentage of that money. If the insolvency practitioner agreed to do their job for nothing, you would still have to pay the same amount to the banks.

CH Ladies and gentlemen, I'm sure you'd like to show your appreciation of our hardworking panel. Thank you very much indeed for your questions and I'll hand over to your host.

Presenter: Lovely. Thank you very much indeed. It just remains for me to say if you would like to move into the Quayside Room there are refreshments waiting for you. Thank you very much indeed for attending.