Committee for the Abolition of Illegitimate Debt

Meanwhile, owing to a squeeze in real incomes (due to wage stagnation, growing precarity and underemployment), and cuts to the social safety net, the resources available to households to service these debts are in serious decline. Three million households across the UK are now severely indebted – paying more than a quarter of their income to their creditors. Almost half of these households are in the bottom quintile of the income distribution (i.e. amongst the poorest 20 percent of households). These households now owe an average of £9,800 to consumer credit lenders, and are paying at least 10 percent of their incomes on consumer credit debt interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and approximately 35 percent of their incomes on debt repayments overall.

With low to middle income households carrying such a huge debt burden; little prospect of a substantial increase in either real wages or welfare spending; and rising societal costs of dealing with the myriad problems that are caused by over-indebtedness, we believe it is time for the UK to consider how we could implement a household debt Jubilee.

We believe that a debt Jubilee should be based on the principle of eradicating ‘unjust debt’, defined as debt which is causing harm to borrowers because it is creating a debt trap, causing material deprivation, or is exploitative in nature. This paper sets out proposals for a high impact programme targeting those most in need of assistance and addressing longstanding problems of irresponsible and often exploitative lending.

We propose a package of measures aimed at eradicating unjust debt:

• STEP 1: Identify households caught in a debt trap and/or or likely to be experiencing material deprivation
• STEP 2: Require lenders to modify existing agreements to reduce the debt to income ratio to a maximum of 30 percent (and write-off the rest)
• STEP 3: Introduce a cap on the cost of credit and provide redress options for people who have already paid more than 100 percent interest on their debts
• STEP 4: Government buy-up of ‘bad’ debts on the secondary market Secondary market The market where institutional investors resell and purchase financial assets. Thus the secondary market is the market where already existing financial assets are traded.

This package would help tackle the household debt overhang and right the injustices faced by low income households because of a succession of policy failures. We estimate that a programme involving the write-off of around £40 billion would be required, with policy decisions needed concerning how far this should be funded through money creation and how much of this cost should be borne by lenders. Forcing lenders to bear at least some of the cost would help to penalise the irresponsible and exploitative lending practices that have contributed to the excessive consumer credit debt burden currently faced by low to middle income households.

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