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Lord Davies of Oldham : My Lords, the whole House is grateful to the noble Earl, Lord Northesk, for introducing this debate, which has provoked some interesting contributions. The division that has been identified between the gloom-mongers and those who are more optimistic is a fair analysis. My joy this evening is that what has always been defined as the gloomy science of economics has had the most optimistic and constructive perspective put on it from the outstanding economist present in the House, the noble Lord, Lord Skidelsky. At one stage I thought that he was going to render my response to the debate otiose. He covered so much of the ground.
In response to one point made by the noble Lord, Lord Skidelsky, on whether the distribution of income and resources has been skewed, and whether some are getting more rapidly better off and others poorer, I thought he might give us some credit for the numbers of children who have been taken out of poverty, which has been the result of constructive policies by the Government. We need to address ourselves to what has been recognised on all sides as certain extreme aspects of the economy about which we need to be concerned.
First, it is clear that low-income families are more vulnerable to loan sharks and to the high cost of credit than others. In a moment, I shall turn in more detail to the measures that have been announced today, and which were the subject of the contribution from the noble Lord, Lord Selsdon. I want to reassure him on that front. Secondly, I shall refer to the wider reaches of the lending industry and the necessity of reigning in some of that by making consumers more aware of their rights and providing clarity of information. I want to
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comment on that in a little more detail. I believe that we are on common ground on those two points. Measures need to be taken and I emphasise that that is what the Government believe too.
On the more general issues, it would not be surprising to the House if I did not place myself firmly among, not the optimists but, the realists who recognise that this is a secure economy which has a base, as the noble Lord, Lord Skidelsky, identified, that changes the terms of some of these arguments. The noble Baroness, Lady Noakes, emphasised the problems of the decline in the savings ratio. Of course, there has been a decline. People feel more secure.
The reason why they borrowed under the previous administration was that they had to guard against the shocks and difficulties of an insecure economy, not least of which were the levels of unemployment at that time that could strip away a household's income. The fact that the people today are prepared to reduce their savings ratios is a reflection of the fact that they have faith in the Government's handling of the economy. They have the experience of certain aspects of the economy working very much to their advantage, not least, of course, the fact that we have the highest numbers of people in work that this country has ever known.
Although the contribution by the noble Earl, Lord Northesk, was on the more pessimistic fringe, he was very fair about certain aspects of debt—certainly on credit card debt. We should recognise that the vast majority of people who incur credit card debt, and who add to the total, meet their monthly commitments. They borrow at a negligible rate of interest—I am sure that this is a position shared by all in this House—and they borrow in an entirely responsible manner. They take out three to four weeks' credit and meet their obligations at the end of that time. That accounts for the majority of our fellow citizens. Although that may lead the noble Baroness to be dreadfully concerned about the overall levels of debt reaching proportions that we have not known before, that may be a reflection of the fact that people have security about the economy as a result of direct experience, and that enables them to take on such obligations without fear.
The noble Earl, Lord Northesk, also excoriated the Government—I cannot repeat his phrase with total accuracy—for shifting the inflation targets. The Government gave the Bank of England the new inflation targets—CPI at 2 per cent—to improve the quality of the targets and to help to ensure that inflation expectations in the UK remain in line with those in the euro area. CPI is a more comparable measure of inflation internationally. It represents international best practice. Adoption of the CPI enables a more direct comparison between inflation rates in the UK and the euro area. I do not believe that the Government have anything for which to apologise. It is not a matter of fiddling with the inflation rates at all, but choosing a more accurate, an effective and an appropriate measure.
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The noble Earl also suggested that the Government were selling pensioners short. I have already mentioned that children have been taken out of poverty. Over 400,000 pensioners between 1997 and 2001 have been taken out of relatively low income, after housing costs. Pensioners are, on average, £13.50 a week better off with pension credit and other measures—than if the earnings link had been in place since 1997. The poorest third of pensioners are around £26 a week better off. So I refute the charge that the Government have not responded to the needs of pensioners. I can assure the noble Lord that the Government are certainly committed to ensuring that all pensioners are able to share in rising national prosperity.
Finally he suggested that the reason why individuals were getting into debt was because they were aping a profligate Chancellor. I can assure the House that the Chancellor is not profligate, but is following extremely realistic perspectives. Tomorrow various elections are taking place and there may be a number of shocks for established parties, as is being reflected in the press—I notice the anxiety on the other side. But what is it about our present political culture that is often commented upon? It is that individuals do not have the highest possible regard for their political leaders and leadership. Suddenly to suggest that the whole country is pursuing particular strategies with regard to household incomes because they are out to ape the Chancellor, is a very odd concept indeed. They would be acting with some probity if they followed him, but I doubt whether we are in a position to claim that particular form of emulation.
The noble Lord, Lord Campbell, put these issues into the context of the European Community. I was grateful for that. I am not in a position to deal with that in a debate that is so limited—we shall need another debate before we address ourselves to the fundamental questions of European membership to which he referred. Suffice it to say that, as far as the Government are concerned, our membership of the European Community is certainly showing us in a very strong economic light, often to the envy of our European colleagues.
We do not underestimate the fact that there are challenges ahead, but it is scarcely for me in this debate to respond to the issues of the European constitution. This was ground that the noble Baroness, Lady Noakes, was keen to drag me onto, but I feel I cannot do justice to that aspect of the debate given so many other issues directly related to the main topic before us.
The noble Lord, Lord Selsdon, was kind enough to suggest that I might be lonely on the Government Benches: who could be lonely when accompanied by the noble Lord, Lord Evans, as a helpmeet in these circumstances? I also heard what the noble Earl, Lord Northbrook said. We all miss my noble friend Lord McIntosh who normally responds to these debates, but he is unable to be here today. He cannot fulfil every conceivable obligation in government, so from time to time the House will have to put up with a rather doubtful substitute.
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What I did appreciate about the contribution of noble Earl, Lord Northbrook, was his suggestion that there were limits to what the Government could do with regard to lending. He is right in those terms and it would ill-behove members of the Opposition to suggest that their position, having put their thinking-caps on, is that the only way we can extricate ourselves from what they define as a crisis, because of the level of our household debt—but which the Government of course deny is in those terms at all—is through a significant government action.
Baroness Noakes: My Lords, I thank the Minister for giving way. Can he remind me which noble Lord referred to this as a crisis?
Lord Davies of Oldham: My Lords, perhaps I have exaggerated by using "crisis", and I withdraw that particular word. I bring again as evidence into this debate the prospect the noble Lord, Lord Skidelsky, indicated he had already heard; namely, a certain amount of pessimism. All of that emanated, as I saw it, from the Opposition Benches. I do not think the noble Baroness did anything to lighten the gloom when we were able to have her contribution on that perspective.
I want to assure the noble Earl, Lord Northbrook, and also the noble Lords, Lord Newby and Lord Selsdon, that we have been concerned today to make announcements on the question of consumer credit. We certainly are taking steps to ensure that there is one measure of APR. I do not know how big the print will be that justifies this; but I do recognise the importance of the small print problem when people are not aware of the nature of the contract that they have signed.
Our announcement today is concerned with producing the first move in a set of regulations in the Government's shake-up of the consumer credit market. It is only a first move and does not implement the whole of the White Paper. I was asked on one occasion in the House whether legislation would follow the White Paper: well, it may do, but we can do a certain amount of constructive good based upon the propositions in the White Paper through regulation. That is the aspect we have introduced today.
The new requirements will tighten up credit advertising so that consumers will be better able to compare products; and it will also introduce a standard way of calculating the APR, which will mean that when an APR appears in an advertisement it must always be more prominent than all the other financial information. The most basic facts will, therefore, be clear to the consumer.
I do not pretend that the latter will solve all the problems of consumer lending. We know there are the vulnerable and we also know that we could all become vulnerable to certain seductive literature submitted through the post. However, today we are introducing a clear approach to cardinal issues which are critical to the consumer. I give way.
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