Miliband's promise to clamp down on payday loans is a good first step

The start of a One Nation economy

While bloggers and columnists have focused on Ed Miliband's call for a reintroduction of the 10p tax rate, scrapped by Gordon Brown, paid for through a mansion tax on £2m properties, it should be noted that the opposition leader signalled signs of hope on personal finance as well.

In his speech, he noted that as a start to building a One Nation economy Labour would:

Break the stranglehold of the big six energy suppliers. Stop the train company price rip-offs on the most popular routes. Introduce new rules to stop unfair bank charges. And cap interest on payday loans.

The financial pinch that people are feeling will not be easy to undo, but I want to suggest two things to complement Ed Miliband's call for building the One Nation economy.

Firstly he must take seriously wages. While millions of state sector workers will see their wages freeze, the average private sector worker’s pay has risen by just 1.4 per cent. All the while, according to latest ONS figures food prices have risen by 4.5 per cent in the last year. Indeed the real wages of many workers fell to 2003 levels.

For many years wages were effectively supplemented by the relative free flow of credit. Today, access to mainstream credit is denied to people who have for a long time seen their wages stagnant, losing the battle against inflation and the rising cost of living.

As academics from the university of Bristol pointed out, while the UK may be out of a technical recession, the public’s recession has never gone away and is getting worse. People having to drive their own personal austerity measures just to get to the end of the month.

Others have not been so lucky - which brings me to my second suggestion. Last year the charity Shelter published findings showing that a million people took out a payday loan to help with their mortgage payments.

Research by Which?, also published last year, showed that 40 per cent of payday loans are being taken out to buy basics such as food and bills.

Many payday lenders can charge up to 4,214 per cent interest on amounts ranging from £50 to £800. On average a payday lender will charge £25 for every £100 borrowed on a loan of 28 days but costs can soon go up if there are missed payments, with fees anywhere from £12 to £25. Compared to authorised bank overdrafts or loans from credit unions these are extortionate figures.

What Labour should be calling for is a total cost of credit cap. Instead of just targeting interest rates a total cost of credit cap would legislate for how much a lender can charge in total, such as administration fees (in Australia, for example, lenders got around interest rate caps by obliging borrowers to buy their financial DVDs).

As I have been told time again, market rules do not seem to be working with high cost credit. Given the large amount of market entrants, prices for credit are still sky high. However when I spoke to Matthew Fulton, a key figure in the End the Legal Loansharking campaign, he told me that an internet company’s break-even point is at around 70 per cent APR, while payday lenders with a shop front can average at 130-40 per cent depending on the types of scheme and duration.

Payday lenders are in the business of ripping off the poor and hard up. So it is very encouraging that Ed Miliband has already pledged himself to place a cap on the prices that payday lenders can charge at.

But it can not be an isolated move. As Veronika Thiel put it in her report on doorstep lending: “Interest rate caps have to be levelled among a series of other regulations and interventions.”

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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Pity the Premier League – so much money can get you into all sorts of bother

You’ve got to feel sorry for our top teams. It's hard work, maintaining their brand.

I had lunch with an old girlfriend last week. Not old, exactly, just a young woman of 58, and not a girlfriend as such – though I have loads of female friends; just someone I knew as a girl on our estate in Cumbria when she was growing up and I was friendly with her family.

She was one of many kind, caring people from my past who wrote to me after my wife died in February, inviting me to lunch, cheer up the poor old soul. Which I’ve not been. So frightfully busy.

I never got round to lunch till last week.

She succeeded in her own career, became pretty well known, but not as well off financially as her husband, who is some sort of City whizz.

I visited her large house in the best part of Mayfair, and, over lunch, heard about their big estate in the West Country and their pile in Majorca, finding it hard to take my mind back to the weedy, runny-nosed little girl I knew when she was ten.

Their three homes employ 25 staff in total. Which means there are often some sort of staff problems.

How awful, I do feel sorry for you, must be terrible. It’s not easy having money, I said, managing somehow to keep back the fake tears.

Afterwards, I thought about our richest football teams – Man City, Man United and Chelsea. It’s not easy being rich like them, either.

In football, there are three reasons you have to spend the money. First of all, because you can. You have untold wealth, so you gobble up possessions regardless of the cost, and regardless of the fact that, as at Man United, you already have six other superstars playing in roughly the same position. You pay over the odds, as with Pogba, who is the most expensive player in the world, even though any halfwit knows that Messi and Ronaldo are infinitely more valuable. It leads to endless stresses and strains and poor old Wayne sitting on the bench.

Obviously, you are hoping to make the team better, and at the same time have the luxury of a whole top-class team sitting waiting on the bench, who would be desired by every other club in Europe. But the second reason you spend so wildly is the desire to stop your rivals buying the same players. It’s a spoiler tactic.

Third, there’s a very modern and stressful element to being rich in football, and that’s the need to feed the brand. Real Madrid began it ten years or so ago with their annual purchase of a galáctico. You have to refresh the team with a star name regularly, whatever the cost, if you want to keep the fans happy and sell even more shirts round the world each year.

You also need to attract PROUD SUPPLIERS OF LAV PAPER TO MAN CITY or OFFICIAL PROVIDER OF BABY BOTTLES TO MAN UNITED or PARTNERS WITH CHELSEA IN SUGARY DRINK. These suppliers pay a fortune to have their product associated with a famous Premier League club – and the club knows that, to keep up the interest, they must have yet another exciting £100m star lined up for each new season.

So, you can see what strains and stresses having mega money gets them into, trying to balance all these needs and desires. The manager will get the blame in the end when things start to go badly on the pitch, despite having had to accommodate some players he probably never craved. If you’re rich in football, or in most other walks in life, you have to show it, have all the required possessions, otherwise what’s the point of being rich?

One reason why Leicester did so well last season was that they had no money. This forced them to bond and work hard, make do with cheapo players, none of them rubbish, but none the sort of galáctico a super-Prem club would bother with.

Leicester won’t repeat that trick this year. It was a one-off. On the whole, the £100m player is better than the £10m player. The rich clubs will always come good. But having an enormous staff, at any level, is all such a worry for the rich. You have to feel sorry . . .

Hunter Davies’s “The Beatles Book” is published by Ebury

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 29 September 2016 issue of the New Statesman, May’s new Tories