The Archbishop of Canterbury, Dr Rowan Williams, has called on the government to do more to protect the poorest and most vulnerable from the likely consequences of an economic downturn.
His comments, made late last week on the BBC Radio 4 Today programme, in other interviews and in the House of Lords, came as the government was forced into a partial backdown over compensation for vulnerable groups hit by the abolition of the 10p tax rate.
The move by Gordon Brown and the traesury has infuriated anti-poverty groups and sections of the PM's own Labour Party, but he insists that his actions are best for the country as a whole.
Meanwhile, speaking in the Lords, Dr Williams, head of the Church of England, highlighted the fact that government targets on alleviating poverty, particularly child poverty, risked not being met and warned that in a period of economic decline the poorest in society, who carry a higher proportion of personal debt, were most at risk.
In the debate, called by the Archbishop, he suggested ways in which government might help low income families avoid entering into cycles of unsustainable debt -by improving financial education in schools, enforcing tighter controls on doorstep credit agencies and by helping to foster responsible alternatives to doorstep lending, such as those offered by Credit Unions.
In his speech on "the impact on the family of economic inequality, credit and indebtedness" the Dr Williams talked about the 'poverty trap' and the effect this has, particularly on children.
He declared: "One of the matters I wish to underline in this debate is that, because of a variety of problems around debt and credit, children in poverty are in fact caught in a particularly toxic version of the 'poverty trap': families with children face heavier pressures in regard to basic expenditure, pressures that push their outgoings beyond their weekly income levels. And this is not to do with purchasing luxuries: it is a matter of school uniforms, adequate diet and heating in the home, access to routine leisure activities (how much does it cost to travel to the nearest swimming pool?) and so on – never mind the extra expectations around Christmas or birthdays. ... "
The archbishop also called for greater financial education to help prepare young people understand the risks of borrowing, declaring that "[t]here is an urgent case for more support for financial education in schools and FE institutions. Young people are vulnerable to considerable pressure – sometimes from banks themselves – to embark on risky and costly ventures into borrowing. They need skills in assessing risks, in interpreting borrowing conditions, in factoring in to their decisions some better awareness of the uncertainties of the whole system. And this needs to start early. The present situation is not good. It is estimated by Credit Action that less than 5% of secondary schools in this country give anything like adequate priority to education in money management as part of their citizenship and PHSE curriculum."
He spoke of how Credit Unions provided a better, alternative source of credit for borrowers, encouraging the government to do more to foster their growth.
Dr Williams said: "[O]ne of the most effective agencies we have in reducing unmanageable debt and developing the skills that help people avoid the worst traps of the credit business. I refer of course to Credit Unions ....... The work of Credit Unions is still all too little known in most of the UK – though there are 172,000,000 members of unions worldwide, with over a quarter of the populations of the US, Canada and Australia being members. The potential is enormous. It is evident at the simplest level in terms of the financial burden involved in the arranging of a loan: the Credit Union makes no charges for arranging this, includes loan insurance at no extra cost and has no penalties for early repayment. Even the most reputable home credit company will be about a third more expensive than a Credit Union. Increasing numbers of Unions organise Child Trust Funds and ISAs, and provide special Christmas accounts to help prevent seasonal debt. Some have effective partnerships with local CABs and housing associations, and there is some highly imaginative work through schools to promote financial literacy."
The Archbishop warned of the dangers of the doorstep lending in relation to excessive charges and rates of interest, and praised the campaign 'Debt on our Doorstep' for their work in calling for "tighter regulation of the lending market, with a proper investigation of payday lending and a cap on charges."
He went on: "The Consumer Credit legislation of 2005 built helpfully on the last review of practice in this area by the DTI and other agencies, but shied away from a ceiling on interest rates. While there is debate about the effects of capping interest rates in the world of home credit, with some arguing that it could encourage unofficial practice even worse than what now prevails, there is a growing consensus that a situation in which charges can legally be as high as they are in the world of doorstep lending is indefensible: it gives the message that borrowing is a business in which you can only be a long-term loser, and so gives a further turn to the despair and low self-esteem that afflicts those caught up in the debt spiral"
Dr Williams said that more could be done to regulate the worst excesses of parts of the industry, suggesting that: "a sharper regulation of the terms and methods of advertising for doorstep credit, which at present is often deliberately unclear about charges and rates of repayment, would bring some checks upon what is increasingly seen as an open scandal
The Archbishop also welcomed government attempts to combat poverty but pointed out that current targets were unlikely to be met on child poverty - an issue likely to be taken up by over 45 major NGO's in 2008 under the umbrella coalition of the 'Get Fair' campaign.
"We can applaud the declared aim of the Government, stated in 1999, to halve child poverty by 2010, but we have to recognise that this goal is sadly unlikely to be attained on present showing. So serious is the prospect that over 45 major NGO's are launching later this year a national campaign, 'Get Fair', aimed at galvanising once again the commitment to end child poverty by 2020, the date originally set – and at tackling the negative and unjust image of people living in poverty that prevails in a worryingly large percentage of the population," he concluded.