Payday loans cap: George Osborne caves in following intervention led by Archbishop of Canterbury

 

George Osborne caved in to demands to impose a cap on payday lending costs to avert a parliamentary rebellion backed by the Archbishop of Canterbury, The Independent has learnt.

Senior Conservatives were understood to have been fearful of losing a vote on a hostile amendment in the House of Lords on Tuesday which would have set a charge cap of 10 per cent on all short-term loans and placed other restrictions on their sale.

The amendment to the Banking Reform Bill was being backed by Archbishop Justin Welby, who was considering speaking out in its favour in the Lords debate. His support was expected to garner the backing of a significant number of cross-bench peers and inflict an embarrassing defeat of the Government.

“As you know, a large proportion of cross-benchers tend to be swayed by the idea of having God on their side,” said one Lords source in favour of the amendment.

“George Osborne’s change of heart had more to do with politics than conviction.”

Archbishop Welby has previously spoken out against payday lenders such as Wonga. Liberal Democrat ministers, who have been lobbying the Treasury for a cap on payday loans for more than a year, were furious that Mr Osborne sought to grab the political credit by announcing a move he had strongly opposed until the weekend.

Vince Cable, the Liberal Democrat Business Secretary, and Jo Swinson, the Liberal Democrat minister responsible for consumer affairs, have both argued for a cap in private but had been forced to toe the Treasury line that such a ceiling would not tackle the problem. 

A Liberal Democrat  source said: “The Liberal Democrats have been pushing for tougher action on payday lenders for over a year. At every step of the way this has been met with strong resistance from Conservatives in the Treasury.

“It seems the Tories read the runes on this one and realised that increasingly the evidence and political tide were against them. Their change of heart is welcome but none of this would have happened without the Liberal Democrats in government.” Liberal Democrats believe the Chancellor was swayed by the prospect of a government defeat in the Lords at the hands of a powerful coalition of Labour, Liberal Democrat, cross-bench peers and bishops.

“He saw the writing on the wall,” said another insider. “There was a head of steam building up in favour of a cap.”

Labour claimed Ed Miliband’s campaign on the cost of living had forced Mr Osborne into “an intellectual U-turn” after the Tories branded Labour’s calls for intervention in the economy as “Marxist”.  

Lord [Stewart] Wood, a member of the Shadow Cabinet, said: “When Labour calls for government action in failing markets, it is flirting with Communism; when George Osborne does, it’s the epitome of good old-fashioned common sense.”

However Treasury sources denied any suggestion that political pressure had swayed Mr Osborne or that the Chancellor was concerned about being on the wrong side of the cost-of-living debate.

Mr Osborne also rejected claims of a U-turn, or that he was aping Labour by intervening in markets. “I don’t accept it’s a departure from any philosophy,” he said.

“The philosophy is we want markets that work for people, and people who believe in the free market, like myself, want that free market to be properly regulated.”

The Government will bring in powers to impose the restriction through an amendment to the Banking Reform Bill, but the level of the cap will be set by the new Financial Conduct Authority.

Q&A: What should be done?

Q: Will a cap on the loans help people avoid falling into debt problems?

A: No. The key issues surround the widespread lack of  responsible lending.

Q: How could payday lenders be more responsible?

A: One option would be to  introduce compulsory  affordability checks. Lenders often make greater profits from rolling over loans than from the original deal.

Q: How should they be stopped?

A: The regulators have already announced plans to cut back the number of rollovers allowed and the number of times lenders can try and recover their cash from  people’s bank accounts. But their advertising also needs to be restricted.

SIMON READ

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Ashdown Group: Graduate UI Developer - HTML, CSS, Javascript

£25000 - £30000 per annum: Ashdown Group: Graduate UI Application Developer - ...

Ashdown Group: B2B Marketing Manager - Events, Digital, Offline

£45000 - £50000 per annum: Ashdown Group: B2B Marketing Manager (Events, Digit...

Day In a Page

Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?
Season's finale brings the end of an era for top coaches and players across the continent

The end of an era across the continent

It's time to say farewell to Klopp, Clement, Casillas and Xavi this weekend as they move on to pastures new, reports Pete Jenson
Bin Laden documents released: Papers reveal his obsession with attacking the US and how his failure to keep up with modern jihad led to Isis

'Focus on killing American people'

Released Bin Laden documents reveal obsession with attacking United States
Life hacks: The innovations of volunteers and medical workers are helping Medécins Sans Frontières save people around the world

Medécins Sans Frontières's life hacks

The innovations of volunteers and medical workers around the world are helping the charity save people
Ireland's same-sex marriage vote: As date looms, the Irish ask - how would God vote?

Same-sex marriage

As date looms, the Irish ask - how would God vote?
The underworld is going freelance: Why The Godfather's Mafia model is no longer viable

The Mafia is going freelance

Why the underworld model depicted in The Godfather is no longer viable