by Matthew Lawrence
Labour must be bigger and bolder if they are to tame the payday lending industry and make affordable credit a reality for all. Today’s announcement that it will impose a “Wonga levy” to fund the expansion of credit unions is a good step forward, particularly when combined with its commitment to cap the total cost of credit. However, as with other consumer markets that are currently failing, much more must be done to build a financial system that is more locally rooted, democratic and focused on value creation, not rent extraction.
Size matters. Miliband’s proposal to introduce a levy on the profits of payday lenders – which would double public funding to £26m for credit unions and other alternative low-cost providers – simply isn’t enough. Whilst the levy itself is a useful mechanism (and one that IPPR in its on-going research into the sector would recommend) in a market that is now worth over £2bn it risks being a drop in a ‘legal loan shark’ infested ocean.
This is particularly the case given that, as the ONS announced yesterday, the UK’s long wage squeeze is set to continue, the industry and its predatory practices are only set to grow. To be worthwhile, the levy must be set at a level to make a real difference within the market. But Miliband’s argument is sound: payday lenders should accept their responsibility for ensuring ‘affordable credit is available’. But Labour can go bigger and properly capitalise on alternative lenders through a windfall levy on the industry that has made hay whilst the sun has failed to shine on the average British household. After all, a “windfall levy” didn’t work too badly in 1997.
