Insolvencies, Regulation & the Future: Key industry figures' views » Local Government » 24dash.com

February 1st saw high-profile figures thrash out crucial issues surrounding the UK's debt crisis, as they took part in IVA.co.uk's Great Debt Debate.

The debate was part of the UK's first annual Debt Awareness Week, held from 29th January to 2nd February and run by IVA.co.uk, Britain's biggest online IVA community for information and advice about Individual Voluntary Arrangements (IVAs), and held to highlight Britain's growing debt crisis and encourage responsible lending, as well as responsible borrowing.

The Great Debt Debate, held at The Museum in Docklands, Canary Wharf, was chaired by heavyweight presenter, Peter Hobday of Radio 4's Today Program, who kept the lively debate under control while fielding questions from the audience.

Key quotes from the panellists follow:

Mark Hoban, Shadow Financial Secretary to the Treasury

On the big issue for him: "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 and credit cards and when the problem becomes to great, there are the right solutions in place to help them get out of that hole."

On the extent of the debt crisis: "There are people who are close to the edge but recent academic research has demonstrated actually there aren't a high proportion of people in debt who are close to that or in that margin [...] 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, people actually do make the wrong decisions, but I think we need to get it all into perspective rather than being to negative about it all."

On the marketing of IVAs: "The marketing of IVAs has led to a greater interest in them. More people have come through to the IVA factories. These businesses are processing large numbers of IVAs. It's profitable for them. 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 jail free card."

On regulation of financial services: "Part of the problem is that there are eight different organisations that regulate insolvency practitioners so it's actually very difficult at the moment, I think, to regulate that sector because of the fragmentation of the bodies and that's something that I think those organisations need to take some responsibility for to get the regulation right."

On financial education: "There isn't enough coverage in the curriculum for financial education. We do need to educate young people, the same way we need to educate other sections and we've suggested 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."

Dr Vincent Cable, MP for Twickenham and regular commentator on government policy regarding debt

On the big issue for him: "I think the problem is more serious in aggregate.
It's not just a problem for individuals [...] The household balance sheet is not as strong as it appears because of all the assets, or most of the assets, are property and it's a very volatile market and 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."

On regulation of financial services: "At the moment there are virtually no constraints 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 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."

On the growth of IVAs: "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 in bankruptcy proceedings, and the IVA companies are now under attack not from the borrowers but from the banks because they feel they are not getting their share of flesh in all this and that's the brutal reality of it."

On financial education: "Things are happening slowly. The level of financial education at the moment is abysmally poor and very patchy [...] 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."

James Falla, debt expert, author, and MD of a debt consultancy

On the big issue for him: "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 that they can't repay. So, 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."

On the extent of the debt crisis: "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 offer 5 times income and people are extending themselves considerably, and we are going to see increases in interest rates this year [...] and 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."

On irresponsible borrowing: "It's important not lose sight of personal responsibility in terms of borrowing money 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 that we need to keep in sight that you are not forced to borrow money and so a certain amount of personal responsibility and personal restraint is going to be part of the solution to the problem."

On attitudes to IVAs: "It is important to understand that an IVA is not a way of getting out of paying what you owe [...] 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 that you will be allowed to take out an IVA. And the people you owe the money to, the banks, have to give their blessing and agreement to that [...] so it is not an easy option though some people mistake the IVA as a sort of magic wand."

Melanie Giles, an Insolvency Practitioner with 20 years experience in the industry

On the big issue for her: "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 is finding a solution that is actually tailored to deal with consumer debtors and understand the needs of the consumer as opposed to businesses."

On the extent of the debt crisis: "Whilst we have a banking system that is 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 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."

On who is to blame: "I think there is blame on both sides [...] 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."

On the growth of IVAs: "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 [...] business people, 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 mis-selling, 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."

On debt consolidation: "Debt consolidation in itself 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, so we get into what we call the debt spiral where debts just carry on going up and up."

Prof. Eric Pentecost, professor of Economics at Loughborough University

On the big issue for him: "My perspective on debt as a macroeconomist is that there isn't really an issue at all, because the aggregate household sector's 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 in that population and as you say, 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."

After the event, Alison Melville, spokesperson for IVA.co.uk added:

"We launched National Debt Awareness Week to open a channel of communication between consumers, banks and the debt solutions industry. Today's event, The Great Debt Debate, made some real headway to that aim but this is just the beginning. The issues raised today need to be explored further and action needs to be taken by all involved. We hope to see big changes in the future and we will be pushing for financial education for all, in schools and in the workplace, to help prevent the debt crisis from worsening"

The audience was made of IVA.co.uk community members, press, students and the general public. Held the day before the release of the Department of Trade and Industry's insolvency statistics for Q4 2006, the event gave voice to public concerns about personal debt levels in the UK.

The event was filmed and will be available to view on IVA.co.uk's online television channel, IVA TV (tv.iva.co.uk) from 2 Feb 2007, along with a full transcription.

Summary Debt Awareness Week Events

Monday 29th Jan

· IVA TV Debt Surgery
· Exclusive interview with Neil Hamilton on IVA TV

Tuesday 30th Jan

· Raising Debt Awareness with the Public of London · Struggle Against Financial Exploitation Public Meeting · Exclusive interview with Benjamin Fry on IVA TV

Wednesday 31st Jan

· Expert school visits
· Unfair Penalty Charges Seminar
· Exclusive interview with Matt Buttery on IVA TV

Thursday 1st Feb

· The Great Debt Debate, chaired by Peter Hobday · Exclusive interview with Bishop Selby on IVA TV

Friday 2nd Feb

· Release day for the latest Quarterly Insolvency Stats · Exclusive interview with Dr Helga Dittmar on IVA TV

A full summary of the week's events can be viewed here: http://debtweek.iva.co.uk/