Finance (No. 3) Bill

Mark Durkan Excerpts

Monday 4th July 2011 Commons Chamber

[Mrs Chapman]

Yes, Members on both sides of the House are, of course. The people behind the credit union movement are hard-working and honourable. I work somewhere where everybody is honourable, but these people really are hard-working and dedicated—many of them are volunteers—and they work in our communities to promote low-cost credit to people who are left out of mainstream credit. However, even with the best will in the world credit unions are not going to be able to compete with Wonga and Uncle Buck and so forth, because they lack the high street and web presence.

[Mark Durkan (Foyle) (SDLP)]

rose—

[Mrs Chapman]

I understand that the experience is different in Northern Ireland, and I shall give way to the hon. Gentleman, whom I suspect will explain that further.

[Mark Durkan]

The low membership of credit unions in Great Britain has been mentioned. Credit unions in Northern Ireland have a high membership; well over a quarter of the population—in some constituencies the figure is more than 50%—are members of the very well-developed and well-funded credit unions. The credit union movement in Northern Ireland has made it very clear that it expects Parliament to take action against the predatory credit sector. The movement does not expect Parliament just to wave to credit unions; it says, “Tackle the sharks, don’t wave to the dolphins.”

--- Later in debate ---

[Mr Hoban]

I listened carefully to that point, and the hon. Lady again demonstrated the problem that she is long on analysis, but short on solutions. She talked about excess profits, but of course there is a range of solutions for that, one of which is to increase competition in the market to force prices down. I am not sure that a windfall tax, which I think is what she is proposing, would have the impact that she expects.

[Mark Durkan]

The Financial Secretary suggests that taxation would inevitably be passed on to consumers, but Ministers insisted not so long ago that the North sea tax would not be passed on to consumers. The Chancellor himself was very clear that it would not, and that he had means and measures to ensure that it could not be. Many Government Members said that they were happy that consumers would not pay the VAT increase, because hard-pressed businesses would just have to absorb it. Why are the Government protecting the predatory credit sector?

[Mr Hoban]

The hon. Gentleman needs to look carefully at the impact of tax in different sectors. Just because one rule applies to one sector does not mean that it applies to others. We know that there is real concern, for example, that if we forced excise duty up too high, people would resort to smuggling to evade it. The impact varies from tax to tax and from area to area, and we need to consider which measures will be effective.

There are broader concerns about how the Opposition want to use tax. As I said, tax is used to change behaviour from time to time, but it is a blunt instrument, and if it is not properly thought through it can lead to perverse outcomes. An increased rate of tax on lenders would not have any obviously positive impact on how consumers are treated. Studies from other areas show that lenders will find ways to circumnavigate regulations and pass costs on to borrowers. A different tax rate for those businesses would be detrimental to consumers and would raise the cost of providing credit to those who may be unable to access mainstream credit.

Members have a responsibility to take seriously the potential for such measures to drive lending underground. I am sure that no one in the House would like to see a rise in illegal loan sharking, which can so devastate lives. The risks to individuals’ financial and personal well-being would be increased by loan sharks, who do not follow regulations or take legal action when debts remain unpaid. They use whatever means they can to recover their money, often forcing borrowers into more debt, or much worse. The provision of short-term credit can prevent financial exclusion, and it has allowed more consumers to access credit in a regulated market.

A number of comments have been made about an interest rate cap. There were three separate reviews under the previous Administration that considered, among other things, price controls in the high-cost credit market in the UK. They all came to a similar conclusion—that introducing price controls may lead to unintended consequences that would not be beneficial to consumers. The OFT review found that

“introducing price controls would not be an appropriate solution to the particular concerns we have identified in this market”,

and that

“developing a system to enforce and monitor price controls or interest rate caps in the UK would be complex, expensive and difficult to administer”.

In Committee, the hon. Member for Walthamstow mentioned a recent European Commission study published at the start of this year, but it found that restrictions on interest rates could deny people access to small amounts of credit, do not reduce overall average interest rates and lead to increased fees and charges being imposed by lenders. The idea of a cap on the total cost of credit sounds appealing at first, but it would have its consequences.