If Wonga are trying to muscle in to the business market, we need a British Investment Bank more than ever

Payday lenders, not content with squeezing individuals, are now going after businesses too.

Anybody who lives in London and/or uses London buses will know that those ghastly Wonga adverts have been replaced. By Wonga adverts. Though this time, for small businesses.

Wonga for Business offers loans of £3,000 to £10,000 which are available for terms of between one and 52 weeks. Costs vary with an interest rate of between 0.3 per cent and two per cent which seems competitive if repaid early, but a 52 week loan, according to Tim Harford, at 2 per cent could work out to have attached to it an interest rate of 280 per cent per year.

Another estimate, this from Sharlene Goff (the FT’s retail banking correspondent), estimated that the largest loan (£10,000) for the longest term (a year) would rack up almost £11,000 in charges.

I exchanged emails with a spokesperson from the company during the week, hoping to find out some tangible figures for how well the new venture is going. All I was told, sadly, was that there have been thousands of applications thus far, and good feedback from people who have been approved, but due to the commercial nature of the company all evidence was kept under wraps.

OK so the suspicion is that it is all bluster. A commercial company with no evidence to show off saying that they're doing great to put the willies in their competitors. But I'm not so sceptical, unfortunately.

Wonga have come to be recognised as another unsavoury payday lender, and for good reason in my opinion, albeit one that is slightly more public-facing than the rest (and this says an awaful lot about the rest). Though what I've come to learn about this financial product is that it often fills in and exploits the gaps where mainstream services are falling behind.

This is the case with payday loans to individuals. And it is the case for businesses as well. Research in November by the Federation of Small Businesses showed that between 2007 and 2010 there was a 24 per cent fall in successful loan applications, while more than half of the small firms that applied for an overdraft last year were rejected.

Even in the good times things weren't sparkly. As Duncan Weldon at the Touchstone Blog has pointed out, "around 85 per cent of bank lending [had been] going to either financial companies or property" even in better financial times.

Competition in this market is rather flat as well. In 2011 the Independent Commission on Banking identified that the largest four banks account for 85 per cent of SME current accounts.

So though Wonga are playing on a very real problem in the state of play in the financial sector, the real issue lies in the failure of banks to lend to small and medium businesses – surely a vital element in our economic recovery.

But what is in our armoury? What tools can we use? It certainly didn't go unnoticed this week that Ed Miliband used the opportunity at the Co-operative Bank HQ to talk up the merits of a British Investment Bank – on the day that the Labour party published a report by Nicholas Tott, a former city lawyer, to make that very case.

Although, this case has been made again and again – why should it have taken this long? One of its most active proponents is Lord (Robert) Skideslsky. In one of his many cases for a national investment bank he exemplifies the European Investment Bank (the European Union's public development bank).

EU governments that own the EIB, in contributing an equivalent sum of £32bn, alongside the bank itself borrowing a further equivalent to £271bn from private capital markets, the EU governments were able to finance investments worth more than the equivalent of £304bn including for ports from Barcelona to Warsaw, the TGV network in France and the world-leading offshore wind industry here in Britain, creating jobs along the way.

Another example, in Germany, is the Kreditanstalt fur Wiederafbau (KfW), a second tier bank, provides cheap loans (liquidity loans at low rates and long maturities) to SMEs using the commercial banks as intermediaries. In 2010, KfW financed loans worth a record €28.5bn for SMEs, creating 66,000 jobs in addition to the 1.3m jobs it helped maintain (which has been on Labour's mind since Lord Mandelson made it the model de jour).

Why has it been most pertinant that Miliband raise the spectre of a British Investment Bank at the time he did (even though he, and others, commissioned the report by Nicholas Tott in December 2011)? Because as Skideslsky notes:

“The financial crisis has left the impression that the main purpose of the banking sector is to enrich a tiny elite at the expense of taxpayers.”

We may all understand in principle that a functioning financial system is crucial to the national economy, but we can hardly attest to this happening in practice (consider, if you will, the NEF calculation that for every £1 paid to “elite” city bankers £7 of social value is destroyed, as well as the damning verdict of Adair Turner, the chairman of the UK Financial Services Authority, who views the past decade of financial innovation as mostly "socially useless").

In short, a British Investment Bank is something that could gain cross-party consensus, provide a real solution to the lending shortfall, build up SMEs, jobs and growth – and allow entrepreneurs to avoid the lending freeze or risking it all with expensive business loans from Wonga.

As a parting shot the Wonga spokesperson told me that we can expect to see “more products from us before the end of the year, but I can't give you any hints I'm afraid”. Perhaps if we are diligent enough we can spot the financial shortfalls before Wonga get there first.  

A payday lender. Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

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Labour's establishment suspects a Momentum conspiracy - they're right

Bernie Sanders-style organisers are determined to rewire the party's machine.  

If you wanted to understand the basic dynamics of this year’s Labour leadership contest, Brighton and Hove District Labour Party is a good microcosm. On Saturday 9 July, a day before Angela Eagle was to announce her leadership bid, hundreds of members flooded into its AGM. Despite the room having a capacity of over 250, the meeting had to be held in three batches, with members forming an orderly queue. The result of the massive turnout was clear in political terms – pro-Corbyn candidates won every position on the local executive committee. 

Many in the room hailed the turnout and the result. But others claimed that some in the crowd had engaged in abuse and harassment.The national party decided that, rather than first investigate individuals, it would suspend Brighton and Hove. Add this to the national ban on local meetings and events during the leadership election, and it is easy to see why Labour seems to have an uneasy relationship with mass politics. To put it a less neutral way, the party machine is in a state of open warfare against Corbyn and his supporters.

Brighton and Hove illustrates how local activists have continued to organise – in an even more innovative and effective way than before. On Thursday 21 July, the week following the CLP’s suspension, the local Momentum group organised a mass meeting. More than 200 people showed up, with the mood defiant and pumped up.  Rather than listen to speeches, the room then became a road test for a new "campaign meetup", a more modestly titled version of the "barnstorms" used by the Bernie Sanders campaign. Activists broke up into small groups to discuss the strategy of the campaign and then even smaller groups to organise action on a very local level. By the end of the night, 20 phonebanking sessions had been planned at a branch level over the following week. 

In the past, organising inside the Labour Party was seen as a slightly cloak and dagger affair. When the Labour Party bureaucracy expelled leftwing activists in past decades, many on went further underground, organising in semi-secrecy. Now, Momentum is doing the exact opposite. 

The emphasis of the Corbyn campaign is on making its strategy, volunteer hubs and events listings as open and accessible as possible. Interactive maps will allow local activists to advertise hundreds of events, and then contact people in their area. When they gather to phonebank in they will be using a custom-built web app which will enable tens of thousands of callers to ring hundreds of thousands of numbers, from wherever they are.

As Momentum has learned to its cost, there is a trade-off between a campaign’s openness and its ability to stage manage events. But in the new politics of the Labour party, in which both the numbers of interested people and the capacity to connect with them directly are increasing exponentially, there is simply no contest. In order to win the next general election, Labour will have to master these tactics on a much bigger scale. The leadership election is the road test. 

Even many moderates seem to accept that the days of simply triangulating towards the centre and getting cozy with the Murdoch press are over. Labour needs to reach people and communities directly with an ambitious digital strategy and an army of self-organising activists. It is this kind of mass politics that delivered a "no" vote in Greece’s referendum on the terms of the Eurozone bailout last summer – defying pretty much the whole of the media, business and political establishment. 

The problem for Corbyn's challenger, Owen Smith, is that many of his backers have an open problem with this type of mass politics. Rather than investigate allegations of abuse, they have supported the suspension of CLPs. Rather than seeing the heightened emotions that come with mass mobilisations as side-effects which needs to be controlled, they have sought to joins unconnected acts of harassment, in order to smear Jeremy Corbyn. The MP Ben Bradshaw has even seemed to accuse Momentum of organising a conspiracy to physically attack Labour MPs.

The real conspiracy is much bigger than that. Hundreds of thousands of people are arriving, enthusiastic and determined, into the Labour party. These people, and their ability to convince the communities of which they are a part, threaten Britain’s political equilibrium, both the Conservatives and the Labour establishment. When the greatest hope for Labour becomes your greatest nightmare, you have good call to feel alarmed.