High-cost Credit

Tony Baldry Excerpts

Thursday 5th September 2013 Commons Chamber

[Sir Tony Baldry (Banbury) (Con)]

This has been a valuable debate, and I congratulate the hon. Member for Islwyn (Chris Evans) on securing it.

What has become clear during the debate is that there are two strands to this issue. First, there is the need for enhanced regulation, which my hon. Friend the Member for Thurrock (Jackie Doyle-Price) and others have talked about, and the Financial Conduct Authority and the Office of Fair Trading have a responsibility to step up to and deal with that. Secondly, each day Wonga makes 10,400 loans. When the Archbishop of Canterbury said that we had to compete Wonga out of business, a cheer went up. In the three years I have been fortunate to be the Second Church Estates Commissioner, I have not known an issue attract as much press interest—one morning I did about 20 radio interviews. All around the country, local radio and newspapers see this is as a serious issue. However, as my hon. Friend the Member for North Swindon (Justin Tomlinson) said, the fact is that each day there are large numbers of people who want to take out short-term loans that they hope to repay over a short period. Of course regulation has an important part to play, but we have to think about what we can do to enhance the competition.

As many Members have said, this is a David and Goliath situation. The hon. Member for Blaenau Gwent (Nick Smith) said that we need credit unions to be fit for the 21st century. They need adequate IT platforms. After the Archbishop of Canterbury spoke, the Manchester credit union said that while having extra premises would be useful, credit unions needed an IT platform that is fit for the 21st century. We have to recognise that many credit unions are still at the starting gates.

My hon. Friend the Member for Worcester (Mr Walker) said that the credit union in his area collapsed altogether, and Worcestershire is a pretty prosperous county. Oxfordshire is an equally prosperous county, but it has pockets of high deprivation, such as Blackbird Leys in the constituency of the right hon. Member for Oxford East (Mr Smith), and at least three wards in my constituency are in the highest social indices for the south-east. We have a credit union that has only just over 1,000 members, which is less than 1% of the population of the city of Oxford. It has just £300,000 of members’ savings and £200,000 out on loan. The Oxford credit union is seeking to do all the right things: it has established a partnership with the south Oxfordshire housing association to help tenants; it rolled out prepaid debit cards to allow members to buy goods without using cash; and it worked with a fuel-buying organisation to allow new members to spread the cost of buying high-cost fuel. However, this House has to give much more thought to what we can do collectively to enhance the status of credit unions. Elsewhere in Europe, credit unions are a much greater feature. I was recently in Ireland for a family wedding and in practically every town I went to there was a prominent credit union building—they are part of the warp and weft of the social structure.

There is a disconnect here. Large numbers of savers in Oxfordshire complain that they get very little return from the banks for their savings. Are there not ways to encourage savers to invest in credit unions? The difficulty is that many people living in Oxfordshire would not think of joining or investing in a credit union. Are there ways in which one could give minimal tax incentives to people who invest in credit unions? If I let a room in my house, I can get up to £6,000 a year tax free. What if the interest on what is invested in a credit union, up to a certain amount, is tax free?

Finding an alternative financial mechanism to the banks and payday lenders will require an enormous amount of energy. The Archbishop of Canterbury says that he thinks it will take a decade to turn things around. It is welcome that the Government are investing £38 million in credit unions, but that is almost exactly the same amount that the main payday lenders spend on advertising in just one year. By and large, the £1 million that they make each week in profit is money that is leaving poorer areas of the country. It is not being spent in shops in areas such as Blackbird Leys.

When the Minister replies to this debate, she will obviously reply to the comments that hon. Members in all parts of the House have made about regulation, but we also have to focus on how collectively we compete Wonga out of business and how collectively we work out an alternative financial mechanism. That might also require banks changing their practices. As the House might know, the Church Commissioners are one of those competing for the new Williams and Glyn’s bank. If we win that competition, we hope to return to the sort of old-fashioned responsible banking that people remember from the 1960s. However, unless people feel able to access short-term loans for short-term needs, they will be pushed into the hands of the payday lenders or, even worse, the loan sharks. We therefore have a collective duty to try to work out how we get credit unions in this country funded and fit for the 21st century.