Retail credit is still solid as a rock

Despite the Northern Rock crisis, consumers must believe they can trust buy now, pay later

If I had written in my last column that we’d shortly be seeing long queues on the high street as people tried to get their life savings out of a FTSE-100 British bank, I would have been laughed at.

Like everyone else, I failed to predict the Northern Rock fiasco – a calamity that, with hindsight, looks predictable enough, given the flawed combination of aggressive long-term lending and short-term borrowing.

Whatever the rights and wrongs of treating Northern Rock investors more favourably than those unfortunates whose pension funds have collapsed, the Government surely had no alternative but to intervene. Not only the retail trade, but civilisation as we know it would simply collapse if confidence was lost in banking and credit.

Most of us call ourselves home-owners, but few actually are. Invariably, we have significant borrowings in the form of a mortgage. Certainly, there are not many people who would dream of buying a new car except on credit and it has become the norm for a whole range of large household items, not least sofas, to be paid for in instalments.

I used to walk past a furniture shop in Doncaster that had in its window a discreet, gold-lettered oak plaque that read: “Please enquire within for confidential deferred terms”. That taboo has been broken as comprehensively as the one against talking about sex – people now happily disclose their intimate financial details in public as they apply for credit, or boast in the pub about their great mortgage deal.

It seems incredible now that, in the 1970s, supermarkets baulked at accepting credit cards because people considered it immoral to buy food on the “never never”. Today, there is virtually nothing you can’t buy on credit. The important lesson we have to learn is that even institutions that look as solid as Rock can prove to be desperately fragile and consumer confidence can crumble at supersonic speed.

Hopefully, those who get no further than scanning the alarmist headlines warning of mounting consumer debts and the end being nigh won’t get the message that there’s something wrong with credit in itself. There is not. Buy now, pay later has been a fundamental of civilised society for generations and as long as people don’t borrow more than they can ultimately afford to pay back, it is a life-enhancing force for good.

Unfortunately, those in charge of Northern Rock forgot that and a drought in the short-term money markets brought it to its knees. But we should not allow one bank’s mistakes to discredit a concept that has made so many of life’s little luxuries accessible to so many and helped to create so many success stories in retailing.

The Northern Rock affair may have dented Britain’s credibility as the global capital of finance, but it has reinforced the fact that we are still the undisputed world leader in forming orderly queues instead of rioting.