[A-List] UK economy: the perils of plastic

[Michael Keaney]

Something else to add to the funeral pyre of Gordon Brown's "prudence"

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Britons' credit card bill: £120bn
DAMIEN HENDERSON and MICHAEL SETTLE
The Herald, March 17 2004

THE massive scale of consumer debt in the UK was revealed yesterday in a
report which showed Britons spent more than £120bn on credit cards last
year.

British borrowing accounted for nearly three-quarters of credit card debt
across all 15 EU countries.

Financial analysts warned that UK consumers' appetite for borrowing while
interests rates were at a historic low could rebound with disastrous
results. With interest rates due to rise again, thousands could now be
forced into unmanageable levels of debt.

Paul Davies, author of the report by market analysts Mintel, said: "There
has been a retail boom, with people spending and taking on more debt, but
with interest rates going up, it will be more difficult to manage existing
debt and there is the potential there for a big problem."

John McFall, chairman of the Commons treasury committee, which last year
censured credit and store card companies for a lack of transparency,
irresponsible lending and charging excessive interest rates, said: "This
underlines the extent of credit card borrowing in the UK, which dwarfs the
rest of Europe.

"We are all aware that a slight change in economic circumstances can drop
households into severe debt. These figures illustrate the need for good
practice," he said.
It is thought that the annual profit made by 50 credit card companies in
Britain is around £20bn. Mr McFall added: "The profits are sufficiently
considerable for the industry to ensure that a fair deal is given to the
customer."

The Mintel report found almost £165bn was spent on Visa and
Mastercard-branded credit cards across the EU last year, a 76% rise on the
£93bn in 1998. The bulk of business is in the UK, where there are 63.9
million cards in circulation, more than one for every man, woman, and child.

Mr Davies said: "Intense competition and heavy promotion by new (credit
card) entrants has meant people have increasingly switched providers or
taken out a second or third card in response to attractive deals that have
been on offer over the last few years."

Last year, there were some 2.75 billion transactions on Visa and Mastercard
cards in the EU, with the UK again coming top by accounting for 1.82
billion, or 28 transactions for every UK card.

Mintel's findings coincided with the Office of Fair Trading announcing it
was investigating charges imposed by credit card lenders. It also published
research yesterday showing that more than three-quarters of card-holders did
not know information as crucial as what APR (annual percentage rate) they
are being charged.

The research suggested that fewer than half (47%) paid off their credit card
balance in full each month, while 38% routinely allowed debts to "roll over"
to the next month, even though this generally meant they incurred interest
charges at a higher rate than a loan.