Miliband's Wonga tax is another trap for the Tories

Should Cameron's party oppose the levy, Labour will accuse it of again siding with predatory companies against struggling consumers.

After doing battle with the energy companies, Ed Miliband is taking on Wonga and co. The Labour leader will announce today that his party would impose a new levy on the profits of payday loan companies (call it the "Wonga tax") and use the money raised to double the public funds (currently £13m) available to credit unions and other low-cost lenders. The plan was first mooted in August shortly after Justin Welby vowed to put Wonga "out of existence" by supporting non-profit lenders, which charge a maximum interest rate of 26%. Labour says that it is currently "consulting on the rate and details of our addition to the levy" but I'm told by a party source that the rate is likely to be around 10%. 

Miliband will also announce that Stella Creasy, who was overlooked in the shadow cabinet reshuffle, will be given "special responsibility" for leading the party's campaign against abuses by payday lenders. On a visit to Peckham today with Creasy, last week appointed as shadow minister for competition and consumer affairs, he will visit the office of a credit union and meet some of those who have suffered at the hands of high-cost lenders. He will say:

The cost of living crisis afflicting millions of Britain’s families is so bad that it is creating a personal debt crisis too. The prices families have to pay keep on rising faster and faster than the wages they are paid. And, as a result, the market in payday lending has doubled in just four years. Almost a third of the payday loans taken out in Britain at the moment are to cover the cost of people’s gas and electricity bills.

For too many families the end of the month is now their own personal credit crunch. A One Nation Labour Government would deal with the causes of the cost of living crisis. But it would also act to help prevent people falling into unpayable debt with radical reform of the payday lending market. We would cap the cost of credit, halt the spread of payday lenders on our high streets and force them to fund the credit unions that can offer a real alternative for people in desperate need.

We must protect the most vulnerable people in our society from the worst of exploitation by payday lenders. And it is right that the companies that benefit from people's financial plight, accept their responsibilities to help ensure affordable credit is available.

As well as good policy, the announcement is also smart politics. Following his call for an energy price freeze, the Labour leader has again put himself on the side of consumers against predatory companies and set a trap for the Tories. Should they oppose the levy (as will be their instinct), Miliband will accuse Cameron's party of again "standing up for the wrong people" and defending the interests of its donors rather than those of the public. As Labour said last night: "this Tory-led Government stands up only up only for a privileged few and, just as it does nothing to stop energy firms overcharging families, drags its feet over uncontroversial reforms of a poorly regulated industry and is doing little of significance to boost low-cost alternatives to payday lending."

While some Tories are sympathetic to calls for action against payday lenders, others argue that state intervention will raise the cost of borrowing for consumers and push them into the arms of unregulated loan sharks. Labour has already pledged to impose a cap on the rates lenders can charge but despite having supported amendments on this issue in the Lords (after pressure from the opposition and others), the government has yet to act. Asked by Labour MP Paul Blomfield at PMQs yesterday whether he would introduce "tough regulation of payday lenders", Cameron replied: "We are still considering the issue of a cap, and I do not think we should rule it out, although we must bear in mind what has been established in other countries, and by our own research, about whether a cap would prove effective."

The PM will likely take a similar view of Miliband's Wonga tax. But having so badly misjudged their response to his proposed energy price freeze, the Tories would be wise to avoid rushing to oppose it. 

Ed Miliband speaks at the Labour conference in Brighton last month. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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England is now a more expensive place to study than the US. Why?

Is a university education in this country really worth £44,000, and how does our system compare to higher education funding elsewhere?

England has long sneered at American universities and their exorbitant fees. It cannot do so any longer: England is now a more expensive country to study than the US, and is easily the most expensive of eight Anglophone countries – the four UK nations, Australia, Canada, New Zealand and the US – analysed in a new Sutton Trust report. English students graduating from last year left university with an average of £44,000 in debt £15,000 more than Americans studying at for-profit universities across the pond.

Why do English students have it so much worse than other students in the UK? There are two answers. The first is the government's decision in 2010 to shift much of the cost of university from the general taxpayer to the beneficiaries: the students themselves. The second answer is devolution. The devolved governments in Northern Ireland, Scotland and Wales have made political choices to differentiate themselves from Westminster by prioritising keeping fees down – even when, as in Scotland, the effect is to benefit middle-class students at the expense of disadvantaged ones. Students in Wales who study in England are eligible for generous grants, meaning they pay less than £4,000 a year rather than up to £9,000. Those studying in Northern Ireland have their fees capped at £3,925. 

Even England's £9,000 fees are puny set against those at elite American universities. In 2016/17 annual, tuition fees at Harvard are $59,550 and, when all else is accounted for, Harvard reckon each year costs students $88,600. But such exorbitant numbers are not the real story. About 60% of Harvard students receive the Harvard Scholarship: a microcosm of how US students benefit from a culture of graduates giving endowents to their old universities that is still lacking in England. Scholarships and bursaries at universities in the US are far more generous than in other countries. And those who go to public universities within their own state pay far less: those graduating after four years leave with an average debt of only US$27,100 [£19,100]. This is why the average debt of US graduates is now considerably less than in England. But those who berate that even America now has a more benign system for students than England should not be so hasty. The majority of US loans are not income contingent, meaning that low earners who are already struggling still have to pay.

Governments throughout the world are grappling with how to fund send an increasing proportion of students to university in an era of austerity. In the last two decades at least 14 countries in the OECD, including Australia, Canada, New Zealand and the UK, have implemented major reforms to fees, according to the Sutton Trust. In general these reforms have led to students paying a greater share of the cost of their tuition. 

So in a sense what has happened in England is merely an extreme example of an international trend. And the introduction of tuition fees in 1998, which have been hiked up twice since, has been managed better than most acknowledge: indeed, the proportion of disadvantaged students at university has actually risen by one-fifth since tuition fees rose to £9,000.

But, with the poorest students in England now graduating with £50,000 in debt, more students will be driven to ask whether a university education is really worth it. For a small but significant minority, it isn’t. A recent IFS report found that male graduates from 23 low performing institutions – though it sadly declined to name them - earn less, on average, than those who do not go to university, and end up with huge debt to boot.

No matter how expensive a university education has become, not having one is even more expensive. Throughout the world demand for university education continues to soar; in England the average graduate premium is £200,000 over a lifetime. Yet too many dunce universities are saddling students with debt without giving them anything in return.    

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.