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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When is the Budget 2017?

Chancellor Philip Hammond will present the last ever springtime Budget to Parliament on March 8th. He has a tricky hand to play.

Fans of the Chancellor’s red box photocall outside 11 Downing Street are in for a treat this year - the abolition of the Autumn Statement means Philip Hammond will present not one but two Budgets to the Commons.

The first – the last ever Spring budget – will be published on Wednesday 8 March 2017. A second – the first Autumn Budget – will come later in the year. This will be followed by a new Spring Statement, which will respond to forecasts from the Office for Budget Responsibility but will no longer introduce new tax and spend changes. 

But what is likely to happen this time around? The Institute for Fiscal Studies set out a grim outlook for the chancellor in its "Green Budget" earlier this month. This year’s deficit will be higher than in 47 of the 60 years before the crash of 2008, the national debt is at its highest level since 1966, and the chancellor is still committed to the diet of austerity prescribed by his predecessor, George Osborne. With day-to-day spending on public services set for a real-term fall of 4 per cent between now and 2020 and those same public services already in a parlous state, Hammond has a difficult hand to play. 

However, Theresa May’s government has proved adept at U-turning when it needs to – think the Brexit White Paper and Amber Rudd’s lists of foreign workers. Here's what to look out for:

Changes to business rates

MPs of all stripes have been pressuring the government to rethink its plans on business rates, which will see new rates based on updated property valuations introduced for the new financial year. 

Initially, the government maintained that three-quarters of businesses won’t see any changes to their rates at all. But the fact that rates for pubs, shops, GP surgeries hospitals could be set to more than double riled Tory backbenchers, several ministers, the CBI and right-wing papers including the Sun and Daily Mail

We will likely see a concession from the Treasury on controversial changes, which were slated to kick in from April. Communities and Local Government secretary Sajid Javid told the Commons that a solution would be in place by Budget Day. 

Reassurances for social care

Britain’s crisis-stricken social care system – and the vexed question of how we’re going to pay for our ageing population – also looms large. In the aftermath of the controversy around the government’s supposed “sweetheart deal” with Surrey County Council, local authorities and charities have been lobbying Number 10 for a new settlement – or at least some extra cash to ease the pain. 

Indeed, the Health Service Journal has revealed the Care Quality Commission is to be handed regulatory oversight for how councils manage their social care services, and a number MPs are increasingly convinced that the government could be set to unveil a modest increase in funding. Any such package would only be a sticking plaster.