A network of new Community Banks should be created across the country as an alternative to “exploitative” high cost credit which is driving millions of people into problem debt, according to a major new report from the Centre for Social Justice (CSJ).
Researchers revealed that two million people are driven to high-cost credit – such as payday lenders – every year because it is the only loan they can get.
The CSJ says red tape holding back successful credit unions should be torn-up so that they can be reborn as ethical Community Banks offering more stable loans and banking services at cheaper rates and on better terms.
It is part of a major package of personal debt reforms put forward by the CSJ that will bring fairer banking to Britain’s poorest communities and challenge the monopoly of mainstream banks and payday lenders.
The study says problem debt fuels poverty and a range of social problems. Almost half of people with unmanageable debt report that it impacts on their health. One survey suggested that a third of the UK's 1.5 million debt advice clients has attempted or contemplated suicide.
Restoring the Balance – part of the CSJ’s Breakthrough Britain 2015 series – calls for increased availability of debt advice and also recommends that employers should create auto-enrolment savings schemes to help promote a better savings culture.
The report, which highlights that household debt in the UK has almost doubled in a decade to £1.44 trillion, revealed that more than 300,000 people in the UK are too poor to go bankrupt because they cannot afford the £525 fee.
Read media coverage of the report by the BBC, The Sun, the Daily Mail and the Evening Standard. CSJ Director Christian Guy wrote about the report for The Spectator and researcher Joseph Henson blogged for Conservative Home.
Breakthrough Britain 2015 is studying the drivers of social breakdown and is putting forward a host of policy recommendations which are expected to be included in the manifestos of the UK's mainstream parties in the run up to the next general election.
The series has so far looked at economic dependency, family breakdown and problem debt. The next three reports, which will be published over the next two months, will offer solutions on addiction, educational failure and how the voluntary sector can do more to tackle poverty.