The business - Patrick Hosking
It will soon be easier to declare yourself bankrupt. Ministers think this will encourage budding ent
Like anyone in civvies who insists on retaining his military title, General Charles Krulak comes across as a little absurd. A US marine for 35 years and later an aide to President Reagan, Krulak now runs the British arm of MBNA, the world's biggest credit card company and one of the UK's top four.
The other day he launched a fierce attack on the new insolvency rules in the UK. These, he suggested, would enable irresponsible people to rack up big debts, go on an almighty spending spree and then duck out of their liabilities by declaring themselves bankrupt.
From 1 April, under the new Enterprise Act, bankrupts will be discharged - able to walk away from their debts - after just 12 months or even less. That compares with three years today and five years before the last relaxation of the rules in 1986.
"I am telling you right now there will be unintended consequences from that," Krulak told the Financial Times. "It is going to de-stigmatise totally the concept of bankruptcy. Now you can pick up a Sunday paper and read about how proud someone was that they solved their financial problems by declaring bankruptcy."
"The General" - as he is known among his staff in Chester - has a point. Debt has long lost its stigma, and welching on debts is barely frowned upon when the lenders are big, remote and highly profitable banks.
Even before the new rules come in, bankruptcies are soaring. There were 10,271 personal bankruptcies in the last quarter of 2003, up 29 per cent on the previous quarter, and the highest level since the depths of the 1992 recession. Krulak points disapprovingly to the liberal rules in the US which, he says, have led to the notion that somehow it's all right not to repay your debts. Personal bankruptcies in the United States are astonishingly high by European standards - a million Americans go bust each year. But it is precisely the American experience that has won over British policy-makers. They want to remove the stigma of business failure and thus encourage entrepreneurs who trip up once to have another go. A small amount of abuse will be a price worth paying, they say, if fewer business creators are put off after one fall. Anyway, there are safeguards. A new tool - the bankruptcy restraining order - will, in theory, curb the abusers for 15 years.
The National Association of Citizens Advice Bureaux has a different take on the new regime. It should know, since its volunteers advised more than a million people on debt problems last year. It warns that the fee to go bankrupt is already too much of a hurdle for the poorest and that the planned hike from £390 to £450 will make matters worse. According to the banks' own research, the new regime will persuade thousands more to default. An extra £76m of loans will never be repaid. That in turn will force the banks to jack up interest rates and rejection rates, denying credit to 172,000 people. Some will then no doubt be forced into the clutches of much nastier loan sharks.
If Krulak is right, he will himself be partly to blame. If anyone is responsible for fostering the "jam today" culture bedevilling the country, it is the credit card companies. Through enticing advertising, mountains of unsolicited junk mail (Krulak's own MBNA is surely the worst culprit here), weasel-worded terms and virtually limitless lines of credit, they have relentlessly pushed the notion that we can have it all now and that there are no consequences.
The Financial Services Authority has given the self-certified mortgage industry a clean bill of health. Readers may recall how BBC2's Money Programme exposed how the banks and mortgage brokers were encouraging borrowers to lie about their incomes in order to get home loans. The FSA insists that there is nothing to worry about, because the number of people in difficulties with these mortgages is not significantly higher than people with standard home loans.
This looks distinctly thin reasoning. It may be that defaults are low because people are able to juggle their debts by fibbing to other lenders, too. We will discover the truth only when money gets tight and dear. As Warren Buffett put it, you only know who's been swimming with no trunks on when the tide goes out. We haven't reached that point yet.
The soaring price of housing is the elephant in the living room. Everyone in government pretends it's not there. Gordon Brown removed housing costs from his preferred measure of inflation, thus halving the official inflation rate.
The Department for Work and Pensions has just pulled the same stroke, ditching housing costs from its calculations, thus rescuing 1.1 million children from below the poverty line.
Patrick Hosking is deputy City editor of the London Evening Standard