UK may be recreating conditions that led to financial crash, warns former pensions minister Ros Altmann

Baroness Altmann has been studying the “huge” increase in debt across the UK and is concerned that regulators may be asleep at the wheel.

She said: “All age groups are getting deeper into debt and this could be a worrying repeat of the circumstances leading-up to the last crash.”

“More people are being offered easy - but expensive - credit and there are no affordability checks.”

With the average adult already paying nearly £1,000 a year in interest and 40 per cent of working age people having less then £100 in savings, financial resilience is weak, Baroness Altmann said.

She added: “The economy is vulnerable to rising debt defaults once again. I urge regulators to wake up to these dangers and consider restricting the easy and expensive credit conditions which have built up.

Ms Altmann said: “Far from resolving the problems caused by irresponsible borrowing and lending, the policies pursued since 2009 seem to have facilitated rising debt levels - both secured, and unsecured - in the UK household sector, as well as the public sector.

“Of added concern is that the interest rates on unsecured credit card debt and amounts lent have increased sharply, despite official interest rates being so low. Banks and financial firms have been rebuilding their strength, but financial resilience of UK individuals has been deteriorating. This is being further compounded by retailers using credit as an additional source of short-term profit, urging customers to buy now, pay later, without checks on affordability of interest payments.”

The conclusion to her report states: “Britain is suffering from a worrying increase in debt levels and the population is increasingly vulnerable to any economic shock.”

Baroness Altmann warned that the culture of savings has withered away, while the borrowing culture has grown alarmingly.

She added: “It is time for regulators and policymakers to wake up to the dangers of ever-rising debt, the lack of financial resilience among the population and the enormous costs of interest payments that are already burdening the public. Controls on credit card lending and automatic credit limit extensions are urgently needed and it is time for attention to be paid to the increase in interest rates being charged to consumers by credit card companies.”

A spokesman for the Financial Conduct Authorirty (FCA) said: ‘In addition to price controls on payday lending and rent-to-own, we have taken substantial action in a number of markets, including the credit card, high-cost credit and mortgages markets, putting remedies in place to address consumer harm. We continue to monitor how the retail lending markets are serving their customers and will take action if we see further harm.

“Our interventions have resulted in more than £900m in redress for consumers. Our price cap for high-cost short-term credit has already saved consumers around £150m per year. We expect our rules to save credit card customers up to £1.3bn per year. We also estimate that our overdraft alerts will save overdraft users up to £160m per year, and that our interventions will save rent-to-own users up to £31m per year and buy now pay later customers up to £74m per year.”

A UK Finance spokesperson said: “The banking and finance industry is committed to responsible lending and to better serving those customers who require access to credit - whether an overdraft, loan or credit card. Lenders work hard to ensure the balance is right between helping customers to budget effectively and meet their payment needs, while lending responsibly and ensuring longer term affordability.

“Most importantly, lenders have worked closely with debt charities to ensure that they treat customers sympathetically and positively if they are worried about their borrowing. We always encourage customers to speak to their lender straightaway if they are struggling with their repayments, to discuss the range of options available to them, a message regularly echoed by the FCA.”