Finance (No. 3) Bill

Debate between Stella Creasy and Lord Walney

Monday 4th July 2011 Commons Chamber

[Stella Creasy]

I would be interested to hear the hon. Gentleman’s advice to the nearly 500,000 Londoners who are having to use their credit cards to pay their mortgage or their rent. Right now, people are borrowing to pay for everyday essentials, and I fear that he sounds a bit like Marie Antoinette saying that people should just eat cake. That is very misplaced, given the dire financial situation that many people are finding themselves in, certainly in my constituency and, I will wager, in his as well.

Indeed, Shelter’s research shows that it is not only people in London who are using their credit cards to pay their mortgages. There are 2 million people in this country who are doing it. It is horrifying to think of the situation that those people are getting themselves into, given the interest rates that they are paying on their mortgages, let alone the rates that they are paying on their credit cards.

We also know that changes in the cost of living affect some more than others. The Resolution Foundation points out in its low earners audit that those on low to middle incomes spend a higher proportion of their incomes on the goods and services that are hard to cut back, such as their housing, their fuel, their transport to work or the food that they put on their children’s plates. That is what the hon. Gentleman is talking about. Those low to middle income earners spend 40% of their spending on those everyday essentials, compared with the 26% spent by higher earners. One in five pensioners have had to cut back on essentials such as food because of the rising cost of living.

This is not just a demand-side issue; it is also about the way in which the high-cost credit market is stacked against the consumer. That is why I believe that the market merits regulation. In order to make its profits, the high-cost credit market makes use of a number of the attributes of the people who have to borrow from it and of the way in which the market is structured. As has been mentioned, a quarter of the customers of high-cost credit companies cannot access any other form of credit. Indeed, Consumer Focus’s research shows that many users of payday loans are unable to access mainstream credit such as overdrafts because they have already maxed them out. That means that they have no choice; they have no power to shop around for a cheaper loan. Also, they cannot build up a credit history that would show a mainstream lender, who might lend at a lower rate, that they could be trusted to pay a loan back.

Because high-cost credit companies have fixed costs, they make their money by repeatedly lending to people. That means that their business strategy is geared towards encouraging repeat borrowing and the rolling over of loans. Friends Provident has found that 29% of payday loans are refinanced, with the refinancing rolling over on an average of two occasions. Some 15% of home credit loans are refinanced and rolled over into a new loan before the end of their term. It is worth explaining what that means for the cost of borrowing from these high-cost credit companies.

One person who got in touch with me took out a loan of £650 with Wonga, in two instalments, to be paid back within a month. When the repayment date arrived, he found that he could afford to pay only the interest that had accrued on the £650, which was £163. The original £650 loan was then rolled over for another month. At the end of that month, he paid off the loan, which cost him another £858. That was the original £650, plus interest of £208 accrued in the second month. The clock starts ticking in the first month of these interest payments, which is how 4,500% interest rates are reached. The longer a loan is rolled over, the closer it can get to the 4,500% APR that Wonga charges. The process of rolling over meant that he had paid £1,021 for borrowing £650 over two months. It is difficult to see what level of cap on the number of roll-overs would make a difference in this market, because the industry consistently refuses to release information about its business model. We can therefore only guess at the impact that the number of roll-overs has on people’s debts.

Furthermore, we know that the rates charged by high-cost credit companies often do not reflect an economic rate, due to a lack of competition in the market, a lack of regulation to drive down costs, and the absence of any ceiling being set. I recognise that using APR is problematic in understanding the cost of borrowing, especially in the payday loans industry, but as a yardstick it can help us to illustrate the issue. We know that payday loans can cost 4,500% from Wonga. They can cost 2,100% from Uncle Buck, 1,200% from Payday UK, and 1,700% from KwikCash.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

I apologise for coming in late to the debate. My hon. Friend uses the same tube line as I do. Did she notice on the way in that one company was advertising on the tube, offering a decision by text within a minute for a loan at an APR of 1,734%. That cannot be right; we have to do something to crack down on it.

[Stella Creasy]

I agree absolutely with my hon. Friend. There is no ceiling on this market, which means that company rates are going up, not down. We also know about the lack of competition with other sections of the market. Provident owns 6% of the market. In 2004, the Office of Fair Trading referred the doorstep lending industry to the Competition Commission and, in 2006, its report confirmed the lack of competition. As Citizens Advice argues, however, the fact that these problems are getting worse, not better shows that the measures suggested in 2006 have not worked and that it is time to strengthen the intervention we make in this market.

Although I am an avid supporter of the credit union movement, it cannot at this moment present any kind of alternative to this market within any relevant timetable. Credit union membership is growing by 8% a year, but the payday lending industry alone is three times as big as it was two years ago. Credit union lending therefore remains relatively small scale, equivalent to just 5.9% in value terms of the high-cost commercial sector. As a consequence, it is unlikely to exercise any real competitive restraints on the prices in the high-cost credit sector.

With all the signs that this market is growing exponentially, this new clause and the review it recommends would allow us to look at a number of issues on how to tackle it effectively. First, it could consider excess profits—

Renewable Energy Projects

Debate between Stella Creasy and Lord Walney

Wednesday 14th July 2010 Westminster Hall

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

I am grateful for the opportunity to debate this important issue, and for the support of colleagues who are in attendance. My basic case is that if we in this country are serious about tackling climate change, we have to get serious about increasing the amount of energy and electricity that we consume from renewable sources.

We face a familiar problem, which has been too familiar over recent years: too often, renewable energy projects have failed to get off the ground and to receive planning consent. Local people and local communities have felt disengaged from projects that they thought were being imposed on them and, as a result, far too often we have ended up with inappropriate sites or with projects not getting through the morass of the planning process. We have to find an acceptable way to change the balance, so that we can increase the number of renewables projects that gain consent in an area and get genuine local community buy-in to renewable energy.

I welcome some elements of the new Government’s programme, including the wholesale theft, if I may call it that, of my party’s manifesto pledge to empower local authorities—councils—to generate electricity from renewable sources. The Minister will know better than I do, from his brief experience of coalition Government, that it involves a little bit of give and take, but I had not realised that it would involve taking wholesale from Labour’s programme. But let us face it, after we lost the election we were not in a position to implement that pledge any time soon, so it was good that the Government took it up.

I hope that the Minister will tell us more about the Government’s interesting plans on business rates, with the potential for giving a reward, in effect, to local people who agree to renewable energy projects. We look forward to hearing more about whether the green investment bank will make a real difference and whether it is to be more than just a Budget item included to give the appearance of doing something.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

It is also important for the Minister to set out how the Government envisage resolving any tension that might arise locally between local communities, which have been empowered to advance proposals for renewable energy, particularly through co-operatives, and local authorities that are allowed to bring forward proposals for local energy generation as a source of revenue production.

[John Woodcock]

My hon. Friend has hit on a key point. There has to be a way to manage that tension. I will say more about co-operative energy solutions. A local authority’s laudable objective must not crowd out the only way that we can get to the root of the problem. There can be a huge gulf between our objective to obtain more energy from renewable sources and the inability or unwillingness to agree locally.

--- Later in debate ---

[John Woodcock]

I thank my hon. Friend for making that important point.

My hon. Friends have mentioned practical ideas as to how Government can help support such vital projects, potentially facilitating loans, and so on. Baywind is an example of a local community-owned project succeeding, which happens all too infrequently at the moment. I hope that the Government will consider seriously their lack of co-ordination in a difficult and complicated field.

[Stella Creasy]

Does my hon. Friend agree that we could learn some interesting lessons from Denmark, and how it has used the tax system to encourage community ownership of renewable energy projects and incentives, and to encourage people to participate in and support them at local level?

[John Woodcock]

Absolutely. We all recognise that money is tight throughout the country. The Government do not hesitate to paint a far more drastic picture than is the case, but we must find a way of breaking the deadlock. The importance of doing so is not simply to tackle climate change, fundamental though that is, but to ensure a greater level of energy security. Renewable energy projects can contribute not only to moving away from fossil fuels and the rising cost that will be tagged to such fuels in coming years, but to increasing energy security for the UK.