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Decision makers should understand the reality of debt before making financial policy

by Derek Mitchell, Chief Executive, Citizens Advice Scotland.

This article first appeared in the Sunday Herald on 24 June 2018

Earlier this month Andy Haldane, chief economist of the Bank of England, gave a talk at TedX in Glasgow entitled ‘Putting the public back in public institutions.’ Echoing an opinion piece he’d written in the Herald a few days earlier, his theme was that members of the public should have more input into the thought processes of the bank’s monetary committee, as he wanted to ensure that the decisions they make reflect the real experience of people across the UK.

It’s a fine objective, and Mr Haldane is an entertaining speaker. His address was amusing and thoughtful, and he clearly has a passion for the subject.

We were a little surprised therefore when he voted last week to increase interest rates - something that will have a harmful impact on millions of people across the country. Not least those who are in debt.

The Scottish Citizens Advice network sees people every day who are drowning in debt, and struggling to get by. Last year nearly 36,000 sought our advice, and many of these were people with multiple debts.

Nor is this just a crisis for people who come to us. A recent survey we commissioned of the general public in Scotland found that 1 in 5 Scots find it difficult to cope financially. The same proportion say they always or almost always run out of money before payday. A further 21% say this sometimes happens.

15% of Scots had been turned down for credit in the last year. For over two thirds of these people the reason was a poor credit rating. 31% had been told they weren’t earning enough and 25% that they had too much debt already. 

So much for the statistics. What’s it actually like being in debt with no realistic hope of getting out of it?

Any CAB adviser hears the same litany from their clients every day: the sleepless nights, the shame of sending your kids to school in old clothes, or standing in the supermarket waiting for the discount shelves to be filled. The stigma of the walk to the foodbank, the ever-growing piles of unpaid bills, pretending not to be in when the doorbell rings, wondering how you can ever square your debts when you’re already having to choose between eating and heating. These are the people who will be hit hardest by interest rate rises, and whose voices are least often heard.

Of course monetary policy should not become entirely directed by opinion poll or even focus groups. There is a reason why the Bank of England is independent of political control. These decisions must be made in the interests of the whole economy, and that means tough decisions at times made by experts with an eye towards the future and not just the present.

But we welcome Mr Haldane’s commitment to learning more about the lived experience of everyday people. In that spirit, I suggest he undertake a series of visits to the CAB service, starting here in Scotland where he could sit in on some debt advice sessions (with the client’s permission of course). His invitation is in the post. 

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