Cap the cost of credit to make life easier for those forced to turn to payday loans

Tackling the legal loan sharks.

Today, Lord Mitchell, an opposition spokesperson for Business, Innovation and Skills, will debate an amendment he has introduced to the Financial Services Bill (now in the report stage in the House of Lords) to potentially cap the total cost of credit which lenders can charge (this is different to capping interest rates in so far as interest rate caps can be sidestepped by upping other costs such as administrative fees. Total cost caps seek to address this potential loophole).

Many peers, like Lord Sugar and Baroness Thompson-Grey, the Welsh former wheelchair racer and disability campaigner, have already pledged their support for his amendment, which will give the new Financial Conduct Authority the power to apply sanctions to those who offer credit contrary to the its terms.

But it's an amendment which everyone, from all political parties, should get behind and support.

It is good for consumers

While the payday lending industry has enjoyed unprecedented growth (worth £100m in 2004, now worth over £2bn in 2012) in recent times, credit access has become tougher for consumers. Around 1.75 million UK adults go without a transactional bank account in the UK today and 9 million adults cannot access credit from mainstream banks. This spells bad news for consumers as the only option for many is expensive short-term loans. Capping the costs of credit will make borrowing less expensive for consumers, at a time when wages are stagnant and the cost of living rises.

It is good for the economy

Damon Gibbons for the Centre for Responsible Credit, in their recent report on Japan and interest rate caps, noted that, all things considered, putting a ceiling on the amount a lender can charge for a loan will make borrowing less expensive - given the rate at which over-priced short-term lending has risen over the last few years. This will have a knock-on effect on saving behaviour and investment. Reinstatement of savings initiatives like the Savings Gateway should also boost this kind of behaviour.

It doesn't contradict the Tory message

Small-c conservatives in the Tory Party have always raised concern about how financial institutions can hurt, rather than help, the finances of those most vulnerable in society. But even those of a more free market bent inside the party have started to see what a problem payday lending is. Damian Hinds MP, chair of the All-party Parliamentary Group on Credit Unions, for example, once felt the market would drive down prices in payday lending, but has now decided that “normal market rules do not apply with payday lenders”.

It will not boost illegal money lending

Important work carried out in 2010 by Professor Dr. Udo Reifner, Sebastien Clerc-Renaud, and RA Michael, for the European Commission, found no convincing evidence to back up the argument introducing interest rate ceilings leads to a growth in illegal lending “or would force people into arrears and default on bill repayments”. In fact it is found in the same report that in spite of the fact the supply of credit in France and Germany is not as abundant as in the UK, this has not been matched by an increase in illegal lending.

A shark. Not a loan shark. 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.

Photo: Getty Images
Show Hide image

It's time for the government to think again about Hinkley Point

The government's new nuclear power station is a white elephant that we simply don't need.

Today I will welcome Denis Baupin, Vice President of the French Assembly, to Hinkley.

His own choice to come and visit the site of the proposed new nuclear power station reflects his strong desire to prevent the UK disappearing up a dangerous dark alley in terms of energy policy. It also takes place as France takes a totally different path, with the French government recently adopting a law which will reduce nuclear energy in the country.

Greens have opposed Hinkley ever since the government announced its nuclear strategy. Hinkley, with its state aid and an agreed strike price of £92.50 per megawatt, has always been financially and legally suspect but it is now reaching the level of farce. So much so that George Osborne is required to be economical with the truth in front of a House of Lords committee because he cannot find anything honest to say about why this is a good deal for the British people.

Mr Baupin and I will join hundreds of protestors – and a white elephant – to stand in solidarity against this terrible project. The demonstration is taking place under a banner of the triple risks of Hinkley. 

First, there are the safety and technological risks. It is clear that the Pressurised Water nuclear reactor (EPR) – the design proposed for Hinkley C – simply does not work. France’s nuclear safety watchdog has found multiple malfunctioning valves that could cause meltdown, in a similar scenario to the 1979 Three Mile Island nuclear accident in the US.  The steel reactor vessel, which houses the plant’s nuclear fuel and confines its radioactivity, was also found to have serious anomalies that increase the risk of it cracking. Apart from the obvious safety risks, the problems experienced by the EPR reactors being built at Flammanvile in France and Olkiluoto in Finland have pushed the projects years behind schedule.

Secondly, Hinkley poses risks to our energy security. Hinkley is supposed to produce 7% of the UK's energy. But we now know there will be no electricity from the new nuclear plant until at least 2023. This makes power blackouts over the next decade increasingly likely and the only way to avoid them is to rapidly invest in renewable energy, particularly onshore wind. Earlier this week Bloomberg produced a report showing that onshore wind is now the cheapest way to generate electricity in both the UK and Germany. But instead of supporting onshore wind this government is undermining it by attacking subsidies to renewables and destroying jobs in the sector. 

Thirdly, there is the risk of Chinese finance. In a globalised world we are expected to consider the option of allowing foreign companies and governments to control our essential infrastructure. But it is clear that in bequeathing our infrastructure we lose the political control that strengthens our security. The Chinese companies who will be part of the deal are part owned by the Chinese government and therefore controlled by the Chinese Communist Party. What a toppy-turvy world globalisation has created, where our Conservative British government is inviting the Chinese Communist party to control our energy infrastructure. It also seems that China National Nuclear Company is responsible for the manufacture of Chinese nuclear weapons.

Of course it is the Chinese people who suffer most, being at the hands of an oppressive government and uncontrolled companies which show little respect for employment rights or environmental standards. By offering money to such companies from British consumers through their energy bills our government is forcing us to collude in the low human rights and environmental standards seen in China.  

Research I commissioned earlier this year concluded we can transform the South West, not with nuclear, but with renewables. We can generate 100 per cent of our energy needs from renewables within the next 20-30 years and create 122,000 new quality jobs and boost the regional economy by over £4bn a year.

The white elephant of Hinkley looks increasingly shaky on its feet. Only the government’s deeply risky ideological crusade against renewables and in favour of nuclear keeps it standing. It’s time for it to fall and for communities in the South West to create in its place a renewable energy revolution, which will lead to our own Western Powerhouse. 

Molly Scott Cato is Green MEP for the southwest of England, elected in May 2014. She has published widely, particularly on issues related to green economics. Molly was formerly Professor of Strategy and Sustainability at the University of Roehampton.