Derek Twigg (Halton) (Lab)
First, may I express my gratitude to you, Mr Speaker, for allowing me to hold this debate, the first of the year, on illegal moneylending? It is held at a most poignant time, with individual and family debt increasing following the financial pressures of Christmas, the new year VAT increase, higher transport and energy costs and the spectre of public service, job and benefit cuts looming large in the UK economy. Indeed, we are in an economic climate most conducive to increasing the number of vulnerable people who fall prey to the illegal and intimidating practices of unscrupulous loan sharks, which have severe and, in some cases, devastating effects on victims, their families and the wider communities.
It will come as no surprise to many of us that the areas with the greatest concentration of loan shark activity are deeply deprived social housing estates, as identified by Policis, the independent economic and social research consultancy, in its November 2006 report, “Illegal Lending in the UK”, for the then Department of Trade and Industry, arguably the best academic study of illegal lending to date.
Those areas, largely urban conurbations and predominantly in the north, the west midlands, Scotland, Wales and the deprived parts of London, have relatively high rates of home credit exclusion, which in itself correlates strongly with deprivation. Loan sharks are illegal moneylenders: they lend without a credit licence, causing immense misery by preying on some of the most vulnerable in our society. They subject many of them to intimidation and threats of or actual violence, while charging super-inflated interest rates—sometimes about 2,500%—and arbitrary late-payment penalties.
A particularly distressing case from my constituency of Halton is my principal reason for applying to hold this debate this evening. Brian Shields, from Runcorn, committed suicide on 3 December 2005 aged just 22. A keen sportsman and a promising footballer, he had run up debts to a loan shark, owing to the extortionate interest rate of 90% that he was charged. A debt of £300 rose to more than £3,400 in a matter of weeks.
The illegal moneylender, Paul Nicholson, was jailed indefinitely in 2009 for offences including moneylending without a licence, blackmail and assault against a number of his victims. He was convicted of raping one woman who could not repay her debts and of threatening to petrol-bomb another woman’s house. The judge in the case said it was
“deliberate, blatant, systematic and sustained intimidation”,
and Nicholson was locked up indefinitely for the public’s protection.
Brian Shields’ mother, Carol Highton, also from Runcorn, hopes that the case of her son’s death might at some stage be re-investigated, owing to evidence of a struggle in the house and the presence of another person shortly before he died. I pay tribute to Mrs Highton, who has been leading a campaign on behalf of families and their victims to introduce far tougher legislation to halt the practice of illegal moneylending, which takes place in a secretive and shadowy world, in clubs, pubs and bars, on mobile phones and through text messaging.
Carol Highton believes that the death of her son Brian raises two very important issues that need to be addressed. First, not enough is being done nationally and particularly in communities of low-income and single-parent families to halt the practice of illegal moneylending and the cynical use of high interest rates to maximise profits from loans. Secondly, there might be many more suicides or attempted suicides by victims who cannot cope with the threats and intimidation that are often the trademark of loan sharks who prey on vulnerable young people and people in general. Mrs Highton believes that the wording of the Suicide Act 1961, which says that it is a crime to
“aid, abet, counsel or procure the suicide of another”,
should apply when people are known to have taken their own lives as a result of threats and intimidation from a moneylender. If such a prosecution policy became more widespread, that would help to deter the practice.
Mrs Highton feels that the law on assisted suicide, which carries a maximum jail sentence of 14 years, should be used to prosecute individuals whose threatening, menacing and intimidating behaviour can drive a person to take their own life, as she says happened with her son. Will the Minister talk to his colleagues at the Ministry of Justice about that? Will the issue be considered when there is a review of criminal offences?
On the night prior to his death, Brian received two phone messages from Nicholson demanding payment—one as late as 11.3 pm. Nicholson also imposed a £10-a-day late payment fine. At the inquest, the coroner noted that Brian had a history of drug taking and financial problems and had received threats concerning the debts.
Since launching the Brian Shields Trust to campaign against loan sharks and provide confidential advice to victims and their families, Carol Highton has discovered that hundreds and possibly thousands of people across the country have suffered at the hands of loan sharks and have been driven to the point of suicide—in some cases, by tactics even worse than those employed by Nicholson.
Carol has appeared many times in the broadcast and print media and is a willing and courageous campaigner, lending active support to teams across the country to help raise the profile of their work on illegal moneylending and of the misery that the practice can cause. That can include forcing victims to engage in drug running, fencing stolen goods and forced sex acts. Her work has been recognised nationally and locally, with television and community awards for her campaigning and courage and the work in close partnership with housing associations, credit unions and the police.
National figures produced recently by Birmingham-based illegal moneylending teams show that since 2004 more than 1,700 illegal moneylenders have been identified, more than 500 arrests have been made and £37 million of illegal debts have been written off. The illegal moneylending teams throughout the regions have helped more than 16,000 victims and more than £20 million of assets are expected to be seized under proceeds of crime procedures, with £1.3 million being seized in cash.
For the launch of the national “stop loan sharks” campaign video last May, the Office of Fair Trading commented that
“Nationally, the Stop Loan Sharks project has so far helped more than 11,500 people, written off more than £31 million of illegal debt, secured more than 60 years in prison sentences including an indefinite sentence for public protection, and seized £1 million in cash.”
At this point, it is worth drawing the House’s attention to the illegal moneylending team structure that the previous Labour Government put in place to tackle the issue head on. It will be useful to quote from the 2009 press release of the Department for Business, Innovation and Skills on the extension of the regional pilot schemes.
“Under the Illegal Money Lending Project the Department has been funding regional teams in Glasgow and Birmingham since 2004 to investigate the impact of strong enforcement against illegal moneylenders (loan sharks).
In 2004, BERR invested £2.6 million in the project and secured a further £1.2m from the Financial Inclusion Fund to expand the pilot into Liverpool, West Yorkshire and Sheffield.
In 2007/8, the project was rolled out throughout England, Scotland and Wales with an additional £2.762m from the Financial Inclusion Fund. BERR committed a total of £16.5 million to the Illegal Money lending Project since the launch of the pilot in 2004.
It was announced In December 2007 that BERR would continue to fund an illegal money lending team in every region in Great Britain until March 2011.
Current plans are that activity will continue at a similar level of intensity throughout the period, subject to periodic review of the impact of the initiative.
The project is a key part of the Government’s”—
that is, the then Government’s—
“financial inclusion agenda, one of the aims of which is to help people gain access to affordable credit. To this end, the teams will focus on providing support to victims as well as on securing convictions against illegal lenders.
The teams will initially target their activity in the areas identified in research published by the Department in December 2006 as areas where the incidence of illegal money is likely to be particularly high.”
I shall not list all the areas, but they include: Cardiff and Swansea in Wales; Hackney, Tower Hamlets and Newham in London; Southampton in the south-east; Newcastle in the north-east; Leeds and Sheffield in Yorkshire and the Humber; and Liverpool and Greater Manchester in the north-west. The press release went on:
“The Birmingham team expanded its existing operations to cover the North West, the South East and the East of England.
It was also given additional funding to support increased financial inclusion and victim support activity in its existing areas: West Midlands, West and South Yorkshire, and Liverpool. The Glasgow team was given additional funding to enhance its financial inclusion and victim support work in Scotland.
New regional teams have been established in the North East, East Midlands, South West, London and Wales, Merseyside and the North East. Since the pilots were established in September 2004, the teams have achieved a number of notable successes.”
The illegal moneylending team and the Brian Shields Trust, which work closely together, have welcomed the Minister’s recent announcement that the illegal moneylending team regime is to receive Government funding of £5.2 million a year over three years. While the Government’s commitment to such work is welcomed, the Brian Shields Trust points out that just over £5 million a year is only a fraction of the money that is expected to be seized in assets from illegal moneylenders under Proceeds of Crime Act 2002 procedures. In the case of Paul Nicholson alone, the authorities managed to recover £800,000, although Nicholson’s ill-gotten gains were originally put at £4.3 million.
The scale of the problem—one that is likely to be made worse by the current economic climate—raises the question of whether sufficient is being invested. Will the Minister say what impact assessments have been made of the scale of the threat posed by loan sharks socially and economically, and what criteria have been established for the new funding arrangements to match the funding needs to tackle illegal lending? How can he be confident that the resources at the Government’s disposal are sufficient to deal with the growing scale of the problem? Is he keeping the situation under review?
The Brian Shields Trust wonders whether the money claimed under the Proceeds of Crime Act is new money or money reclaimed by the courts originally belonging to the victims. Would it not be fair if some mechanism were put in place to enable victims to reclaim money paid to illegal moneylenders, who are obviously operating outside the law? I also share Carol Highton’s concerns about whether the replacement of the regional teams with one team for England based in Birmingham will achieve the desired result of a more robust and better restructured strategy or, as I suspect, will spread more thinly the good work that has been done in tackling loan shark practices. This is the important point I want to make to the Minister. The regional illegal moneylending teams themselves express such concerns about the proposals of the Department for Business, Innovation and Skills to replace them with one national body for England in Birmingham, as announced by the Minister at the end of December.
Howard Turton, enforcement manager of the north-east illegal moneylending team, says that such a proposal would be a backward move in the fight against illegal lenders. He is on record as saying:
“We believe that the decision to deprive the North-east of a local team will be damaging to the communities we serve and is a retrograde step”
that will have
“an adverse effect on the levels of enforcement activity across the region.”
That is despite the success of the north-east illegal moneylending team, which was set up by the Labour Government exactly three years ago precisely to tackle the prevalence of illegal lending in the area. That team has written off some £2 million of illegal debt and secured the arrests of 80 illegal lenders.
Particular successes have included the seizure of £6,000 in cash and cheques following a home and office raid during December 2009 in Redcar and three arrests in connection with the confiscation of counterfeit luxury goods. Mr Turton worries that smaller community lenders—more prevalent in the north-east—will be overlooked by a nationally based operation that is keener on targeting the really big players. As Councillor Brian Hubbard of Middlesbrough argues,
“to centralise something that essentially works better when it is localised does not make any sense.”
Indeed, surely a legitimate concern is whether local existing expertise in tackling loan shark activity and supporting its victims at the coal face will be lost in the concentration of resources to a single centre of operations.
I am aware that my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) made representations to the Leader of the House in business questions on 25 November to secure not only a Commons debate on the issue, but a top level meeting with BIS Ministers. The Department for Business, Innovation and Skills has admitted that some redundancies will take place among regional lending team staff, and one has to question what the uptake will be of staff accepting job transfers from the north-west and north-east to, for instance, the national Birmingham centre.
Indeed, at a time when vulnerable people will be even more exposed to loan shark victimisation due to the austerity cuts, how can the Minister justify the sacking of existing local lending team staff, who are there to help people? That will doubtless put more pressure on already stretched Jobcentre Plus staff, who I understand will be trained in identifying those who have fallen prey to moneylenders. My local citizens advice bureau has expressed similar concerns to me. Indeed, what kind of perverse logic deems it necessary to axe the jobs of those who are there to help vulnerable people escape the traps of unemployment, indebtedness through illegal lending and, in many cases, the mental and physical ill health that is associated with it for themselves, their families and their communities? I remind the Minister that the coalition agreement said:
“Difficult decisions will have to be taken in the months and years ahead, but we will ensure that fairness is at the heart of those decisions so that all those most in need are protected.”
I should like to make it clear that no criticism of the hard work of the illegal moneylending team in Birmingham is intended, as it has proved how successful it has been in the past four years and is doing fantastic work in setting up savings accounts and directing people towards legitimate credit unions.
It is worth noting that more than 150 credit unions and community financial institutions have benefited from the Department for Work and Pensions growth fund and that more than 306,000 loans have been made to financially excluded people, with an estimated total value of £133 million. Given the Department’s budgetary constraints, will its growth fund continue to be fully resourced to sustain these worthwhile contributions?
The ability to access good-quality money advice and debt counselling services is an essential weapon in combating illegal moneylending and debt. With the onset of the financial crisis, the previous Labour Government recognised this and provided additional funds for money advice and debt counselling services. I pay particular tribute to the work done in this regard by Halton citizens advice bureau and Halton borough council in my constituency. What are the Government doing to strengthen debt and money advice services?
One final thought is whether the practice of illegal moneylending is treated too much like a consumer trading offence instead of a crime under the Theft Act 1968. According to the illegal moneylending teams, prosecutions take place under the Consumer Credit Act 2006, not the Theft Act, even though the dealers are no longer licensed.
I would very much welcome the Minister’s views on these matters.
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)
I thank the hon. Member for Halton (Derek Twigg) for securing this debate because it gives me, as a Minister, the chance to deal with some of the detailed questions that he has put to the House and to talk about the general issue, which is a very serious one. He is right to say that it affects some of the most vulnerable in our society, on whom these illegal loan sharks prey. We as a Government are committed to building on the good work of the previous Government to ensure that we have people ready to tackle those criminals.
The hon. Gentleman began his remarks with the tragic story of his constituent, Brian Shields, who committed suicide under the pressure of loans and loan sharks. May I send my condolences to his constituent’s family and pay tribute to the work that they have done by campaigning on this issue? They have clearly made a very significant contribution.
The story that the hon. Gentleman told about Paul Nicholson, who was a loan shark acting in his constituency, shows the significance of this crime and how devastating it can be for individuals and communities. This individual preyed on vulnerable consumers in the hon. Gentleman’s constituency. When he was found guilty of these crimes, he was ordered to pay back almost £1 million and sentenced to an indefinite term. The judge, rightly, was very strong in his remarks about the appalling way in which this individual had behaved. That example shows the need for vigilance and the need to invest in this area.
The hon. Gentleman asked us to do more. I am pleased, however, that we were able to announce that we are maintaining funding for illegal moneylending teams so that next year there will be same rate of funding as this year. Given the levels of cutbacks that we are seeing in many programmes in my Department and across the Government, that is testament to the significance that we give to this project and the value that we place on the excellent work done by the illegal moneylending teams who have been operating so well.
The hon. Gentleman raised a number of questions about our policy in respect of illegal moneylending teams, and I want to address those directly before moving on to more general remarks. I am glad that he welcomed the investment we are making, although he asked what assessment we had made of the need and whether more money should be provided to ensure that that need was addressed. I have to tell him that—
Mr Davey
The evidence from the illegal moneylending teams shows that the work needs to continue. It would, of course, be nice to increase the work, because it is clearly effective. However, I refer the hon. Gentleman to the evaluation of the illegal moneylending project by Policis, which was published in October 2010. It concluded that the project had made an excellent start to tackling illegal moneylending, but that we needed to reform the way in which illegal moneylending teams were set up. It was very clear that larger teams that covered a wider operational area were more successful than smaller ones. That independent report, which was set up by the previous Government, recommended that the whole project should adopt that model. Although I understand the concerns of, for example, the teams in the north- east, which the hon. Gentleman repeated, I refer him and the people who have those concerns to the report. It stated that we would get better value for money and be operationally more successful if we restructured in the way that we propose. No way is this some sort of cutback. The aim is to make the teams more effective in tackling the problem.
We will also ensure that the project retains local understanding and presence. I hope that gives some reassurance to the hon. Gentleman and his colleagues. Financial inclusion officers, who can direct people to advice and support, will continue to be based locally. We are trying to get the balance between the local and national issues that he rightly talked about. I think that we can get the best value for money and make the teams more operationally effective, while still getting the important local information, under the structure that we propose.
The number of job losses owing to the closure of regional teams will be relatively small. Our aim is to protect front-line enforcement staff numbers as far as possible and for many staff to be transferred to the Birmingham team.
I do not agree with the idea that having a team that covers the whole of England, as well as ones that cover Wales and Scotland, will prevent the team from paying attention to small-scale illegal lenders and will mean that it focuses resources only on large-scale investigations. The project aims to have an impact across the country, and to learn the lessons of recent years. We will continue to tackle community-based loan sharks and those that operate across wider areas. There will still be the hotline number, 0300 555 2222, that people can ring and text for support and help.
The project will play a central role in our attempt to tackle this problem. I would welcome the chance to have a wider debate on this subject, should one of the hon. Gentleman’s colleagues secure it from you, Mr Speaker, because I believe that we can achieve consensus in this area. We can pay tribute to the previous Government, which initiated the project. In return, I hope that this Government will get some credit for continuing the level of funding and for building on the independent report that the previous Government commissioned.
The hon. Gentleman asked about debt and money advice, which has been raised by Citizens Advice and others. The consideration of future funding is still being worked through as the implications of the spending review are analysed, and we are waiting for Her Majesty’s Treasury to come to its final conclusions, which I am sure will be announced in due course.
The hon. Gentleman asked whether there should be a review of criminal offences in relation to suicide. He will understand that that is a matter for Ministers in the Ministry of Justice, but I am sure that his comments will be brought to their attention.
I am particularly delighted that the hon. Gentleman has given me this opportunity to discuss this subject, because we initiated the consumer credit and personal insolvency review last year and hope soon to begin the process of analysing all the responses that we have received. We thought it necessary to step back and examine the matter because consumer debt is such a problem. He has highlighted one extreme—unscrupulous and illegal moneylenders—and noted how damaging it can be, but I am sure that he is aware that when one looks across the landscape of debt, one sees many different problems for individuals and families.
The numbers involved are huge, and they should worry us all. Outstanding borrowing by individuals stands at about £1.46 trillion, having more than doubled in the past 10 years. About 12 million households, just under half of all the households in the UK, have some type of unsecured debt, of an average amount of just over £10,000. We can examine the changes in more detail. In the third quarter of 2009, £44 billion was lent to UK consumers in unsecured credit, compared with about £9 billion in the same period in 1987. If we allow for inflation, that is an increase of nearly 250%. The significance of credit and debt in our society and our economy is massive, and it has created problems that previous Governments and previous generations did not have to deal with.
Let me be absolutely clear that borrowing, in itself, is not bad. We should welcome the freedom to access credit, and credit liberalisation has been a force for good in many ways. It is excessive borrowing and irresponsible lending that causes problems, and we need to analyse it carefully. When we published the review document, I was keen, first, to examine what we might call the life-cycle of debt, starting at the point at which the decision to take on debt is made, and consider how consumers and lenders could make better borrowing and lending decisions. If we can improve the financial capability of borrowers and achieve a new culture of responsible lending, that will improve initial decision making.
Secondly, I was keen to ensure that consumers and lenders managed their existing borrowing in a way that was much more sustainable in the long term. We want consumers to be more proactive in managing their borrowing, and thus better prepared to deal with the uncertainties that life can bring upon them, whether it be illness, unemployment or the other problems that can make borrowing arrangements and debt so damaging.
Thirdly, I wanted to examine situations in which credit arrangements go wrong and people fall into difficulties, to ensure that people are signposted more effectively to the best possible debt advice. There is clear evidence that people with debt problems turn to the first person they come across. If that person, organisation or company is not scrupulous, they can get advice from exactly the wrong type of people. I know that the previous Government were concerned about that. There is a mirror image of the unscrupulous lenders about whom the hon. Gentleman talked—debt advice organisations that are almost as bad as loan sharks. We need to ensure that we tackle that problem, especially as so many organisations, not least citizens advice bureaux, offer exemplary debt advice services.
I end by reiterating the hon. Gentleman’s comments about the illegal moneylending teams. It was a major theme of his speech, and I want basically to agree with him. Their success to date has meant that they have arrested more than 500 illegal moneylenders, written off more than £37 million of illegal debt, which would otherwise have had to be paid back, helped more than 16,000 victims of loan sharks and seized more than £1.3 million in cash.
That reminds me of another question, which I have not yet answered. The hon. Gentleman asked whether the new funding that we announced would come from the cash that was seized from illegal moneylenders. I am afraid that the amount of money seized from illegal moneylenders is much smaller than the sum that we have announced. As he knows from the Proceeds of Crime Act 2002, that money has to go back to the Treasury anyway, so there is no hypothecation or earmarking. We have not tried to make some behind-the-scenes saving—the money that we have announced is genuinely new, and I am glad that he welcomes it.
I commend the work of all the teams. I appreciate that we are asking them to restructure, but I hope that they will examine the independent evaluation and realise that we are doing that with the benefit of analysing and valuing their excellent work in helping the victims of loan sharks, and in helping to tackle the scourge of loan sharks in our communities.
I assure the House that the Government appreciate concerns about the availability and the consequences of consumer credit. Used sensibly and responsibly, credit is a tool for coping with life’s uncertainties, but we need to gather the evidence before we introduce new rules, or else risk unintended consequences. The review that we have initiated constitutes a strategic approach to the issue, although we have already been able to act against unscrupulous lenders.
Question put and agreed to.