According to the Independent today, George Osborne’s surprise decision to impose a payday loans cap was precipitated by a threatened revolt by the Archbishop of Canterbury. Archbishop Justin Welby had been planning to speak in favour of an amendment to the Banking Reform Bill today, which would have imposed a 10% cap. The amendment was expected to attract support from cross-benchers and would probably have inflicted a defeat on the government.
The Independent claims:
Vince Cable, the Liberal Democrat Business Secretary, and Jo Swinson, the Liberal Democrat minister responsible for consumer affairs, have both argued for a cap in private but had been forced to toe the Treasury line that such a ceiling would not tackle the problem.
It also quotes a ‘Liberal Democrat source’:
The Liberal Democrats have been pushing for tougher action on payday lenders for over a year. At every step of the way this has been met with strong resistance from Conservatives in the Treasury.
It seems the Tories read the runes on this one and realised that increasingly the evidence and political tide were against them. Their change of heart is welcome but none of this would have happened without the Liberal Democrats in government.
A Newsnight investigation aired last night revealed that people who have taken out payday loans are being turned down for mortgages. Vince Cable was asked about this, and said it was very unfair, but that the regulation of advertising should put to stop to that by requiring a health warning. But before he was allowed to comment on that aspect Jeremy Paxman grilled him on why he was now supporting a payday loans cap, when he appeared to have been less enthusiastic earlier.
Vince Cable claimed that he had taken a number of steps to regulate the industry, and that this was the latest move, based on recent evidence from Australia which showed that such a cap would indeed be workable.
* Mary Reid is a contributing editor on Lib Dem Voice. She was a councillor in Kingston upon Thames, where she is still very active with the local party, and is the Hon President of Kingston Lib Dems.
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4 Comments
As long as we have the convention of Cabinet Responsibility our ministers are going to have to keep finding convoluted explanations for supporting measures which they oppose . Would a simple statement to the effect that “I abide by the rule of Cabnet Responsibility”, breach that rule? If not, why not say so. At least that way the minister could show that his agreement was reluctant.
I see financial wellbeing as having three pillars. Income and capital are obvious one, but for the luckier ones easy access to reasonably priced credit is the third one. At the moment some people are paying APRs of thousands of percent whereas others are being begged by their credit card companies to take out loans branded as ‘interest-free periods’ for which they can pay as low as 3%.
I’m not sure a pure capping will fully do the trick. It may drive some borrowers into the clutches of loan-sharks. The payday loan market needs more sophisticated and flexible regulation.
Big Stick, Big Brother government legislation is not the way to go.
Government regulates society by taxation, benefits and the rule of law. The rule of law is the least effective means of regulation.
To bring down the cost of borrowing, change the taxation rules for businesses operating in the financial sector.
To encourage banks to lend to businesses, require the banks to pay 3% interest on consumer/retail current account balances.
The corporation tax that banks would be liable for could be 10% per percentage point charged minus the 3% plus the base rate. So if a business loan interest was 5.5%, the corporation tax rate would be 20%; 4.5%;- 10%; 12.5%;- 90%. In this way, a causal loop of downward pressure on the cost of borrowing would be established.
Regarding PayDay loan companies, which do not take deposits, establishing a 10% tax on profits per 1% of interest charged would limit the interest charged to 9.9% because the tax on profits would be 99%.
10% interest charged would create a tax on profits of 100%.
In my view, even the interest charged by credit card companies is excessive. However, like alcohol, they are an accepted part of our cultural patterns of value. So perhaps the corporation tax rate could be 5% per percentage point interest charged.
These measures would start to end the “Rip Off” culture that is Britain today.
@Robert Wooton
‘In my view, even the interest charged by credit card companies is excessive.’
But they are very variable, depending on what the company’s computer thinks of you. One holder of credit card may be paying 26% APR, whereas the next, more favoured, holder of the same card, may be paying the charge for an interest-free period and borrowing at an effective 3% APR.
The company has the data about this, but the customers do not. This puts the company in a very dominating position compared to its clients.