People who endlessly lecture the poor about personal responsibility rarely see the bigger picture. So for instance while commentators and politicians of the Right depict those on benefits as lazy chancers who prefer to stay in bed as their neighbours go off to work, they ignore or forget to mention the fact that 60 per cent of the people hit by the government’s recent benefits squeeze have jobs.
That’s right. Many at the bottom of society who will find the coming year tougher than the last (always the sign of a failing government) are people who leave the house every day to earn their money rather than make it - a distinction most of the millionaire cabinet will probably not appreciate.
No Conservative politician will ever tell you this of course, but as a party it believes with its heart and soul that rich people will not work unless they are given money, whereas poor people will only do so if they are not. Being “tough” on benefits is also more important than being correct about benefits.
As well as being a drain on taxpayers who must subsidise miserly employers, poverty pay has also led to a boom in debt. While the government waxes lyrical about reducing the nation’s credit card bill, the chancellor’s economic policies are resulting in more of us borrowing just to keep our heads above water. Last week the consumer group Which? found that nearly half of people used credit cards, overdrafts, store cards or payday loans to pay for Christmas, with average borrowing just over £300.
And of course, there’s nothing like a good crisis to galvanize a certain type of lustrous “entrepreneur” who is always on hand to interpret the misfortunes of others as an opportunity to make a fast buck.
The payday lending industry has experienced a boom in recent years as incomes have stagnated and speedy, unsecured loans offering cash with no questions asked have replaced banks as the go-to source for credit. Today 1.75 million British adults do not have access to a bank account and a further 9 million are without accounts that grant them credit. Combine this with stagnant pay and the ever-increasing cost of utilities, and many face a brutal choice – go without the basics or take out a payday loan.
Payday lender Wonga was named the fastest growing business in Europe in 2010, and last year it made profits of £62.4m, providing almost 2.5m in unsecured loans. Its headline annual interest rate is more than 4,200 per cent, so borrowing £100 means paying back £137.76p after one month to avoid late charges or, worse still, accrue rollovers and require additional loans to settle existing debts. Of those seeking help with debts from the Citizens Advice service, in the first quarter of 2009/10 only one per cent had at least one payday loan. In the same quarter in 2011 this had risen to four per cent. In 2012, 10 per cent had a payday loan.
Trail of debt
A new book on payday lending exposes how the looseness of the regulatory system in the UK has made the British high street a gold mine for the industry, leaving behind a trail of indebtedness as poor families pile debt upon debt to pay off various high interest lenders.
“‘Julieta’ took out a payday loan of £200 on Tuesday, and repaid the loan on Friday, plus £60 interest. Her pay packet was £290 after tax. So of course she didn’t have enough money left to last until next payday so she took another loan from the same payday company a few days later, also repaying it on the Friday with another £60 interest. Her bank statement showed her doing this every week for a month.”
Loan Sharks: The Rise and Rise of Payday Lending (2012) also claims that payday loans are not being used to “top-up an exuberant lifestyle, as some would have you believe”, but are rather being taken out to cover the basics. Just as many previously took out overdrafts and credit cards to stay afloat (or through the bargaining power of trade unions took on employers for better pay), today it is payday lenders – something akin to Robin Hood in reverse – who people increasingly go to as traditional sources of credit dry up.
“The payday lending industry has grown out of a failure by government and big banking institutions to accommodate for the rise in the cost of living, declining wages and basic credit facilities for those who need them,” author of Loan Sharks Carl Packman told me.
“These are perfect conditions for an industry that profits from poverty.”
Money lenders have been portrayed in fiction by everyone from Dostoyevsky to Charles Dickens as corrosive parasites who profit from the misfortune of others. Of course, not all money lenders behave like that, and credit would factor in any conceivable economic system – investment, for one thing, relies upon credit; and borrowing is often useful when personal finances take a hit for unexpected reasons.
But the apparently unstoppable growth in payday lending represents something wholly different. As well as being the ugly face of a predatory capitalism which believes profit must always trump ethical considerations, it is the cancer at the heart of Britain’s low pay economy. To justify the inexorable cuts it is making to benefits, the Conservative Party says work must pay. And yet it shows no intention of improving workers’ pay and conditions (quite the opposite), and is instead through a combination of callousness and economic credulity leaving people increasingly in hock to poorly regulated payday lenders.
“The government needs to monitor more closely the activities of payday lending, how responsibly they lend, and evaluate how many loans individuals are taking out to ensure they don't enter a debt cycle,” Packman added.
Those who have nothing to sell but their labour do not have the same interests as the new breed of payday “entrepreneur” just as surely as those who depend on their job for their livelihood do not want the same thing as those who live off dividends and investments. If the government continues on its current path, 2013 might well be the year of the payday lender – or, as they might more accurately be described, the harbingers of debt, debt, and more debt.