Lib Dems warn of consumer debt and property crash

Consumer debt and the threat of a crash in the housing market are among the biggest threats to the British economy, the Liberal Democrats have warned.

They said that mortgage borrowing was by far the largest component of consumer debt levels and warned that historic house price booms were "always followed by a crash".

In a briefing ahead of tomorrow's pre-Budget report, Vince Cable, the Liberal Democrats' Treasury spokesman, warned of risks facing the economy.

He said: "The biggest I think is personal debt. We are getting towards levels of debt servicing in relation to people's income which preceded the time of the crash under the Tory government in the early 1990s.

"Interest rates may be lower but people are having to repay their debts. Most of the debt is associated with mortgages ... All the government assumptions are based on the fact that house prices are stable, but you can see from the charts that when there has been a big boom there has been a big crash. I'm not predicting anything but history suggests we do not get a soft landing."

Mr Cable said that 770,000 people had missed at least one mortgage payment in the past 12 months and said two million households were struggling to pay their council tax.

Labour left-wingers published an alternative budget yesterday, including plans to cut the starting rate of income tax to 5 per cent while increasing top rate tax to 50 per cent for incomes over £60,000 and 60 per cent for incomes over £100,000.

They also called on the Government to scrap plans to increase the retirement age and force companies to spend half of all dividends to fill the gaps in their pension funds.