Credit plans sink under weight of consultation

Modernising the Consumer Credit Act; BSkyB headache; Legal and General
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The Independent Online

In a perfect world, there would be no loan sharks, and since it is utopia that New Labour is aiming for, the Government has a manifesto commitment to tackling them. So far, however, ministers seem to have done little more than chase their tails round and around in circles. Yesterday's consultation document on modernising the Consumer Credit Act was just more of the same.

In a perfect world, there would be no loan sharks, and since it is utopia that New Labour is aiming for, the Government has a manifesto commitment to tackling them. So far, however, ministers seem to have done little more than chase their tails round and around in circles. Yesterday's consultation document on modernising the Consumer Credit Act was just more of the same.

Melanie Johnson, the consumer affairs minister, billed it as the biggest shakeup in consumer credit laws in a generation, but it is hard to recognise the description in the restatement of motherhood and apple pie principles and objectives she outlined yesterday. The Government's main problem is that it ducked the obvious and most simple solution - which is to impose some kind of ceiling on what can be charged for a loan - as impractical and counter productive right at the start.

This possibly had something to do with the fact that the Government allowed what most of us would think of as loan sharks to help dictate the policy. The task force set up during the last parliament to examine the whole issue of overindebtedness included not just bankers and mortgage lenders but the tallymen too, those whose trade it is to trawl Britain's most deprived council estates for the country's least credit worthy borrowers.

But please don't call us loan sharks, say the likes of Provident Financial and Cattles. The real loan sharks are much lower down the food chain, and without us Britain's great unbanked wouldn't have access to credit at all. Just look at it like this, they say. We lend you twenty five quid until the end of the week, when you will repay the favour in the pub with a free pint. That doesn't sound so bad, does it, but since a pint costs about £2.50 these days, that's an effective APR of 520 per cent, which put like that sounds extortionate.

Yes indeed, this loan shark business is not as black and white as it seems, which is the problem the Government has had in attempting to address it. In the end it is usually better to consult and get it right than blunder into some ill thought out, shoot from the hip policy initiative, but what's going on at the moment is surely taking the process to extremes.

Yesterday's consultation document seeks submissions from many of the same parties that helped draw up the earlier "task force" report on which it is meant to be based. We already know what they are going to say, so what's the point of asking them again? Nor is there any timetable for the half baked series of reforms proposed.

Tightening up the law on extortion? Nobody's going to disagree with that. Just go ahead and do it. Magnifying the small print in credit agreements? Now that really would be going to far. Again just do it. The Government has yet again faffed around on a matter affecting not just the most vulnerable elements of society, but all of us, through our credit card, hire purchase and other borrowing arrangements, and failed to come up with any meaningful programme of reform or timetable to address it. Just another example of well intentioned but woolly thinking then.

BSkyB headache

The trouble with these digital landgrab investment plays is that they are all about jam tomorrow. On the other hand, there's more reason to believe the jam tomorrow story in the case of British Sky Broadcasting than there is with most of them. On the evidence of yesterday's figures, BSkyB is over the hump of its digital spend, its operating profits are on a strongly rising trend, it is consolidating an unassailable lead in the multichannel TV market and it is even managing to achieve its targets for growth in revenue per subscriber.

Debt is far too high for comfort, and once the interest has been paid, the company is still deep in the red, but unlike ITV Digital and cable, there's real evidence of progress and every reason to believe that Tony Ball, the chief executive, will deliver all he promises. It appears that Rupert Murdoch's latest big gamble, to bet the shop on the transfer to digital, is going to work. Only a serious recession could derail him now.

So why are the shares still trading at little more than a third of their peak in March last year? Partly it is down to generally abysmal sentiment in the media sector. As a subscriber based service, Sky ought to be more resilient than most to the downturn in the advertising market, but that doesn't seem to have helped the share price.

The bigger fly in the ointment, perhaps, is the French media group, Vivendi, which is sitting on a 23 per cent stake in Sky that it is required by regulators to dispose of by December next year. Vivendi's chairman, Jean-Marie Messier, has sent out all kinds of conflicting signals on what he's going to do about it. First he said he definitely wouldn't sell the shares in the market, implying that he would either sell them to someone else, or perhaps trade them in for some of Sky's Continental assets. Now he says he will sell, but not for less than £12 a share, or getting on for double the present share price. If the shares don't reach that level by the time he's forced to sell, he'll stick them in trust until they do.

Either way, Mr Messier is a pain in the proverbial for almost everyone else with shares in Sky. Mr Ball needs to find a solution soon if he wants to see his share price revive.

Legal and General

ANOTHER GREAT set of results from Legal & General yesterday, fully vindicating the careful, well thought out strategy being pursued by the L&G chief executive, David Prosser. But is the long-term outlook for savings institutions – even those as top drawer as L&G – really as good as everyone assumes? The bull case is that with the decline of state and company retirement benefits, L&G and others are sitting pretty. We'll all be forced to save more, and the life companies will be the lucky beneficiaries.

Already there is plenty of evidence of it. L&G sold 30 per cent more pensions in the first half. Like CGNU, which reported figures last week, it is already benefiting greatly from the introduction of the Government's stakeholder pension. Having cleverly opened up fresh channels of distribution through Barclays and Alliance & Leicester, Mr Prosser can expect lots more to come.

The bear case, however, is growing disillusionment with all forms of stock market investment. That may be just a temporary thing, but right now it looks as if you'd be better off sticking your money in property or even leaving it on deposit than investing in a pension or other long-term savings product. That's dismissed as a grossly irresponsible attitude by the salesmen, who point out that the accumulator effect of stock market investment over time usually guarantees an excellent long-term outcome. Combine that with the tax break, and there's no better way of saving than through a pension.

Well, maybe, but what if they are wrong? What if stock market returns are in for a prolonged period of underperformance, as many predict? Equitable Life is a special case, of course, but the more general point it highlights is that the assumption of continued high rates of stock market return may be misplaced. Further out there's an even greater threat to the savings market, the point at which the post-War baby boomers begin retiring, stop saving and start cashing in in their millions. That phenomenon starts to kick in in about 10 years time, at which point returns may sink in even lower. But you won't hear that from the salesmen.