PM forced into speech rewrite after debt lecture derided
06 October 2011 10:51
The Prime Minister David Cameron was forced into a last-minute rewrite of his speech to the Tory Party conference yesterday, following overwhelming negative reaction to previews of the original oratory which called for people to pay off their credit cards.
However rather than greeted as a sensible suggestion to help the nation's finances, the call was roundly criticised as being both out of touch and economically dangerous by retailers, the Institute for Public Policy Research, economists, debt advisory bodies and, of course, the Labour Party.
Mr Cameron had been planning to say: "The only way out of a debt crisis is to deal with your debts.
"That means households – all of us – paying off the credit card and store card bills."
Instead he backtracked and said instead: "The only way out of a debt crisis is to deal with your debts.
"That's why households are paying down their credit card and store card bills."
The embarrassing retreat came as the Opposition highlighted Treasury figures suggesting that household debt was set to hit £2.1 trillion by 2015 amid stalling growth and austerity measures.
That is £303 billion higher than Chancellor George Osborne predicted in his emergency budget the month after the coalition came to power.
The British Retail Consortium also warned that urging people to "retrench" was "at odds with promoting growth".
"David Cameron is actually a bit behind the curve here because this is what consumers are doing anyway and have been doing for some time," a spokesman said.
"Today's GDP figures confirm that household spending has been falling now for four quarters in a row.
"Our research shows the main things people are doing with any extra money is putting it into savings or paying off debt.
"A third of people say they do not have any extra money.
"What of course we actually need to revive the economy is for customers to both have the money available and have the confidence to spend it.
"Of course people shouldn't run up unsustainable debt but there is nothing wrong with borrowing as long as you can service that debt.
"A call for people to entrench even further is at odds with promoting the growth that we need to get.
"I think you can go too far in trying to draw parallels between households and the nation."
Sainsbury's chief executive Justin King told BBC Radio 4's Today programme: "I think David Cameron is catching up with events.
"That's precisely what customers have been doing for a good while now - managing their budgets prudently, week in, week out, month in, month out.
"We do have a bank. We can see quite clearly that people are not taking out more debt and on the whole are trying to pay it down when they can."
Joanna Elson, chief executive of the Money Advice Trust, said trying to repay money too quickly could be damaging.
"We speak to many thousands of people each month who have lost their jobs, fallen ill, had to take time off work to care for a loved or broken up with a partner," she said.
"Life changes like these can cause devastating financial shocks in someone's life, and can make it very difficult to meet previously comfortable credit agreements.
"It is vital that people are given help to repay their debts in a sustainable way. Where people are encouraged to repay money too quickly it can make the problem more serious, forcing people to take out more and more credit just to make the repayments - and ultimately landing them in more debt."
Nick Pearce, director of the ippr think-tank, wrote on his blog: "Estimates of trend growth in the UK are around 2.25% a year (ie, no more than 0.6% a quarter), so even paying off just credit card debt over the life of this Parliament would guarantee that the economy shrank quite significantly between now and 2015.
"In the long run, the UK consumer does need to reduce her debts. The economy needs rebalancing towards investment and exports.
"In the short to medium term, if the consumer took the Prime Minister seriously, we'd be in real trouble."
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