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Finance (No. 3) Bill

There is a real concern about the lack of advocacy services and about people's inability to get help in negotiating with their creditors. I believe that we have to make credit affordable for all; payday lenders could be part of the mix if they were properly regulated. That is all that the new clause calls for. Let me present some figures that might tempt Treasury Ministers when they see what could be achieved in the way of tax through this review. The Competition Commission inquiry into the lack of effective price competition in doorstep or door-to-door lending estimated that companies were making an excess profit of at least £150 million a year. The commission considered that 90% of that excess profit was made by Provident Financial alone. On that basis, Provident has made £675 million in excess profit out of low-income communities since 2005—a sum greater than the total amount of credit union lending that took place in 2010. The Competition Commission's findings showed that excess profits amounted to additional costs to the consumer of approximately £9 for every £100 lent. A cap on that basis would have allowed Provident to charge no more than £53 for every £100 lent in 2006—still a lot of money. Even allowing for inflation at about 4.5%, taxing credit lent at a rate of £63 per £100 lent in this market would save consumers some £18.80 on every £100 borrowed or about £94 on the cost of a typical £500 loan. Even if Ministers rejected looking at tax measures, they could look at how to introduce an effective cap on the cost of credit. Let me be very clear: I do not want to see a cap on interest rates. I know that Members have been lobbied extensively on this and been given information about capping the costs of credit based on caps on interest rates. I do not believe that caps on interest rates work effectively. The European research shows that low caps in America have been problematic, but it points out that the more flexible caps in Europe have been effective in controlling the market. There are many myths about capping the costs of credit, as there were about regulation and the minimum wage. To those who argue that capping the costs of credit would cut lending and put firms out of business, I say that they should look at Poland, France and Germany, which all have such caps. To those who fear that caps would encourage all banks to start charging 4,000% interest, I say that that clearly would not happen. The EU research shows that interest rate caps have in some cases led to less illegal lending, as consumers are better able to manage their borrowing requirements without turning to informal sources of credit. The review could also consider what happens in other countries and how they cap the costs of borrowing. It is not just America, France, Poland, Germany, Italy, Greece or Spain that have caps on the costs of credit. Fourteen European countries have some form of capping system or ceiling on charges, whether it is France with one third over the market average, or Slovenia, which has a spread of caps. Some countries, such as Ireland, cap only parts of the market. Others, such as Germany, have limits on all forms of lending. We could also consider capping roll-overs: I agree with the hon. Member for Solihull (Lorely Burt) that that is critical. In Alabama, for example, if someone cannot repay a loan the first time they take one out, they can have it rolled over only once. In Arizona, one can have it rolled over only three times. In 2010, Consumer Focus called for limiting the number of roll-overs to five per household per year. We could also consider capping the amount that can be lent as a percentage of income. In Montana, one cannot be lent more than 25% of one's take-home income. The number of such loans that a person can have at any one time could also be capped. In Montana, a person cannot have more than two at any one time, and a lender cannot lend the person more than $300. Nebraska allows only one loan at a time. As my hon. Friend the Member for Nottingham East (Chris Leslie) said, we could also consider whether financial conduct authority powers are relevant to such practices. I note that there is talk about it dealing with toxic products, and I hope that Ministers will consider seriously whether it should regulate the consumer credit market. The review could consider that. Above all, the review would be a kick start for action in a matter that is pressing on many of our constituents. We know the consequences of doing nothing: rates of borrowing from such companies are going up and up. At the time of the Competition Commission report, Provident Financial was charging £65 per £100 lent; now it is charging £82 per £100 lent. That is an increase of 26% in the cost of credit. With a 4.5% rate of inflation, and a 2% increase in earnings, it does not take a mathematical genius to work out that problems for families trying to make ends meet will only get worse. Between April and May this year, there was a 58% rise in people applying for a payday loan via MoneySupermarket.com. One in 10 people in this country now spends more than 30% of income on repayments on unsecured debt. What are the human costs of not dealing with such levels of debt? We all know people in our communities whose lives have been torn apart by getting into debt, whose families are struggling, and who experience mental health problems as a result. Were it passed, the new clause could cover a wide range of things. The question remains: do we need it? I believe that we do, because the Opposition need to be certain that there will be action. Whether the Government will act in the best interests of the consumer, and not the coalition, is now in question. Back in February, the Minister responsible for consumer credit asked for more time to gather evidence. Five months on, we have nothing, and no update. He will not meet us to discuss the matter. I warned then that we could see any impetus for action diluted, lost in ministerial red boxes and the cosiness of the mantra that complexity justifies the status quo. I did not realise that it would be those on the Government Benches who prevaricated rather than officials. In the words of a prominent Lib Dem activist, to reject the new clause"““merely because it is an opposition amendment risks us being portrayed as mealy mouthed opportunists—caring more about party politics than the people I know we all got into politics to speak up for, those people whose lives are constantly blighted by these ruthless money lenders””." I came to the House not to improve the fortunes of the Lib Dems, but the fortunes of the public. Today, I have set out the problem in the hope that Government Members will do the decent thing and let the cat out of the bag about what they will do to give respite to those who are suffering. If not, the Government should understand that we will not let the matter rest, and we will keep holding them to account. They may want this debate to go away, but let it stand on the record that those who vote yes to the new clause today are those who see the value to our economy of ensuring affordable credit for all, who see the benefit of our communities of ensuring that they are not trapped in debt for years trying to make ends meet, who put the interests of the British people first, not second, and who know that the capping of the cost of credit should be announced now and not on the conference podium. I ask Members not to make the public wait but to vote yes today, tell their constituents how they plan to cap the cost of credit, and then get on with doing it. The people who depend on us to fight for their interests and those of their families need and deserve nothing less.