Britons are addicted to debt, say Tories

A Conservative government would tackle Britain's 'addiction to debt', shadow chancellor George Osborne said today.

He was speaking as he unveiled a plan to give the Office of Fair Trading powers to clamp down on store cards which charge 'excessive' rates of interest.

He is also suggesting a seven-day cooling off period before people can start using their cards.

He told GMTV: 'We've got a big problem in Britain, we're addicted to debt, and we are seeing the consequences of that as the credit crunch hits, and everyone is finding it more and more difficult with the rising cost of living.

'I think the role of the next Conservative government is to stop Britain's addiction to debt, and make sure when we next have a financial crisis or economic problem, that we are much better prepared than we are at the moment.'

People in the UK owe £2.2billion on store cards, the Conservatives said, with the number of accounts having almost doubled from seven million to 13.4million in the last five years.

A party spokesman quoted the Competition Commission as saying some store card rates were 'above competitive levels'.

He added: 'Excessively high store card interest rates are costing the British public over £55million per year.'

Around a third of the 27 most popular cards still charge APRs (Annual Percentage Rates) of more than 25 per cent, with some charging 29.9 per cent or more, almost double the average credit card rate, the spokesman said.

Under Mr Osborne's plans, the Office of Fair Trading (OFT) would be given powers to define 'excessive', drawing on factors such as mainstream credit card market interest rates.

The spokesman said: 'Based on current OFT rules, the Conservatives expect this could apply to store cards with interest rates of 25 per cent and over.'

Mr Osborne told the programme: 'Obviously every individual has got to be careful about getting into debt and not being able to repay it, and businesses have a role, but Government has a role too.'

He said there were some good companies, such as Ikea, Monsoon and Mothercare, that were charging lower rates.

Mr Osborne said there is 'a growing minority who struggle to pay their loan bills' (file picture)

And he dismissed suggestions that the policy showed a 'nanny state' attitude.

'I'm not telling people whether they should take out a store card, I'm just setting out the boundaries to ensure fair play.

'We all have to pick up the pieces when people get out of control with their debts.'

In a statement Mr Osborne said: 'Every four minutes the amount of personal debt in Britain increases by £1 million.

'While many people borrow responsibly, there are a growing minority who struggle to pay their loan bills. With the cost of living rising, that is likely to get worse.

'We need to take steps now to deal with the current problem and make sure that in future we don't repeat the mistake and let Britain become hooked on debt.'

He said it would be sensible for there to be a cooling off period of seven days between when people applied for a store card and when they could start spending on it, 'so people have a chance to pause and think about the debts they're running up'.

The spokesman said store cards could be a specific cause of problem debt: 'They can be sold by untrained and heavily incentivised staff, with discounts offered to entice customers into signing up on their initial purchase, paid for by high interest payments.

'In 2006 the Competition Commission's investigation into store cards concluded: "There is little or no competitive pressure on the setting of APRs... APRs are above competitive levels."

'This investigation also found that excessively high store card interest rates are costing the British public over £55million per year.

'However, in spite of successive OFT and Competition Commission reports, store card interest rates are still significantly higher than conventional credit cards.'

The Tories would also launch a free national financial advice service, 'providing impartial and independent guidance on financial issues via face-to-face sessions, telephone advisers and online information.'

This would be rolled out across Britain within 12 months of a Conservative Government coming to office.

It would cost £50million per year to set up and operate, and be funded in full through a new 'social responsibility levy' on the financial services sector.