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.
 

GETTY
Show Hide image

Cabinet audit: what does the appointment of Andrea Leadsom as Environment Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for Environment, Food and Rural Affairs.

A little over a week into Andrea Leadsom’s new role as Secretary of State for Environment, Food and Rural Affairs (Defra), and senior industry figures are already questioning her credentials. A growing list of campaigners have called for her resignation, and even the Cabinet Office implied that her department's responsibilities will be downgraded.

So far, so bad.

The appointment would appear to be something of a consolation prize, coming just days after Leadsom pulled out of the Conservative leadership race and allowed Theresa May to enter No 10 unopposed.

Yet while Leadsom may have been able to twist the truth on her CV in the City, no amount of tampering will improve the agriculture-related side to her record: one barely exists. In fact, recent statements made on the subject have only added to her reputation for vacuous opinion: “It would make so much more sense if those with the big fields do the sheep, and those with the hill farms do the butterflies,” she told an audience assembled for a referendum debate. No matter the livelihoods of thousands of the UK’s hilltop sheep farmers, then? No need for butterflies outside of national parks?

Normally such a lack of experience is unsurprising. The department has gained a reputation as something of a ministerial backwater; a useful place to send problematic colleagues for some sobering time-out.

But these are not normal times.

As Brexit negotiations unfold, Defra will be central to establishing new, domestic policies for UK food and farming; sectors worth around £108bn to the economy and responsible for employing one in eight of the population.

In this context, Leadsom’s appointment seems, at best, a misguided attempt to make the architects of Brexit either live up to their promises or be seen to fail in the attempt.

At worst, May might actually think she is a good fit for the job. Leadsom’s one, water-tight credential – her commitment to opposing restraints on industry – certainly has its upsides for a Prime Minister in need of an alternative to the EU’s Common Agricultural Policy (CAP); a policy responsible for around 40 per cent the entire EU budget.

Why not leave such a daunting task in the hands of someone with an instinct for “abolishing” subsidies  thus freeing up money to spend elsewhere?

As with most things to do with the EU, CAP has some major cons and some equally compelling pros. Take the fact that 80 per cent of CAP aid is paid out to the richest 25 per cent of farmers (most of whom are either landed gentry or vast, industrialised, mega-farmers). But then offset this against the provision of vital lifelines for some of the UK’s most conscientious, local and insecure of food producers.

The NFU told the New Statesman that there are many issues in need of urgent attention; from an improved Basic Payment Scheme, to guarantees for agri-environment funding, and a commitment to the 25-year TB eradication strategy. But that they also hope, above all, “that Mrs Leadsom will champion British food and farming. Our industry has a great story to tell”.

The construction of a new domestic agricultural policy is a once-in-a-generation opportunity for Britain to truly decide where its priorities for food and environment lie, as well as to which kind of farmers (as well as which countries) it wants to delegate their delivery.

In the context of so much uncertainty and such great opportunity, Leadsom has a tough job ahead of her. And no amount of “speaking as a mother” will change that.

India Bourke is the New Statesman's editorial assistant.