David Rutley (Macclesfield) (Con): I welcome the statement, and it is particularly welcome in Cheshire east where we anticipate a 120% increase in the number

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of people living beyond 85 in 10 years’ time. The Dilnot report stresses the importance of the awareness campaign. Does my right hon. Friend envisage an active role for third sector organisations such as Age UK and Citizens Advice not only in delivering the awareness campaign, but in helping to shape it, and is there also a wider role for such organisations within the Dilnot framework?

Mr Lansley: My hon. Friend makes a very good point, and I hope we will be able to take up and develop that during the coming weeks.

Neil Carmichael (Stroud) (Con): Does my right hon. Friend agree that in a modern, responsive and caring social care system, we need more transparent and effective decision making and improved integration with the NHS, so that the person in need of care can navigate their way around the system?

Mr Lansley: I agree with my hon. Friend, and in his county the early implementation of health and wellbeing boards, which are to be legislated for under the Health and Social Care Bill, will provide precisely that opportunity for the integration of health and social care services.

Andrea Leadsom (South Northamptonshire) (Con): A constituent of mine who is 61 years old is the full-time carer for both her disabled husband, who lives with her, and her elderly mother, who does not. Since she drew her state pension, she has not been allowed any kind of carer’s allowance. Will my right hon. Friend join me in praising all retired people who do such work, which saves the taxpayer a fortune, and will he look into what we can do to provide more support for such people?

Mr Lansley: I am grateful to my hon. Friend for asking that question, and I will, indeed, join her—and, I am sure, the whole House—in expressing our support for those who care for their relatives. It is absolutely vital work, and we should understand and support it. As my hon. Friend will know, my right hon. Friend the Secretary of State for Work and Pensions is currently reforming welfare, and he has made it clear that although carer’s allowance does not form part of universal credit, it is important for us to continue to understand how it should in future meet its aim of supporting carers.

Mr Speaker: I am grateful to the Secretary of State and all colleagues who participated.

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Points of Order

4.40 pm

Mr Liam Byrne (Birmingham, Hodge Hill) (Lab): On a point of order, Mr Speaker. Both you and “Erskine May” have made it very clear that, by a resolution of this House, Ministers should be as open as possible with Parliament, refusing to provide information only when disclosure would not be in the public interest. Nineteen days ago, this House completed debate on the Welfare Reform Bill, including a measure to place a cap on benefits. During the debate, on 17 May, the hon. Member for Cardiff Central (Jenny Willott) said that she had “heard” that Department for Communities and Local Government estimates forecast a rise in homelessness of 20,000 if the measure was introduced and that the policy would cost more than it saved. The Minister of State, Department for Work and Pensions, the right hon. Member for Epsom and Ewell (Chris Grayling) replied by saying

“I have no clear evidence that further information is available”––[Official Report, Welfare Reform Public Bill Committee, 17 May 2011; c. 985.]

beyond the impact assessment.

Yesterday, we learned that the DCLG had, in fact, written to the Prime Minister’s office, ahead of a meeting of the Prime Minister, the Deputy Prime Minister, the Chancellor and the Chief Secretary to the Treasury, to say that, yes, the DCLG’s assumptions were that homelessness would rise by 20,000 and the policy would cost more than it saved. It seems inconceivable that this cast list and the hon. Member for Cardiff Central all knew about this and the Department for Work and Pensions Ministers did not. In addition, the Secretary of State has signed an impact assessment which makes no mention of the DCLG’s concerns. He said that his picture was

“a fair and reasonable view of the expected costs, benefits and impact of the policy”,

even though it does not contain the warning that was issued to the heart of government. My question is, therefore, very simple: how do we in this House bring Ministers to account for who knew what and when, and why did they not disclose crucial, material information to this House?

Several hon. Members rose

Mr Speaker: Order. I am grateful to the right hon. Gentleman for his point of order and I will take other points of order in a moment. First, I would say to him that he has recourse to the Table Office and may want to avail himself of that opportunity to see how, through the Order Paper, he can pursue the matter. Secondly, he has raised, on the Floor of the House, an extremely important issue. He will appreciate that I have not had the opportunity to study in detail the force and potential significance of what he reveals, but I am happy to look into it further, reporting back to him and, if necessary, to the House. Thirdly, Ministers on the Treasury Bench will have heard what he has said, and the text of it will very soon be available to them, and it is for them to decide whether, on the back of his observations, they think it necessary to say something to the House sooner rather than later.

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Jeremy Corbyn (Islington North) (Lab): On a point of order, Mr Speaker. Last Monday, the Home Secretary answered an oral question from the hon. Member for Finchley and Golders Green (Mike Freer) by giving the view that she was able to consider whether or not to grant an exclusion order against an individual—in this case, Sheikh Raed Salah. He was subsequently arrested and is now being detained in prison. Only after great difficulty are his lawyers being allowed to visit him tomorrow morning, and no other visitors have been allowed. I realise that the House cannot debate the matter today and I understand that no legal process is before any court on this matter but, at the very least, do you not agree, Mr Speaker, that the Home Secretary should, out of courtesy, come to the House to explain what she has done and take questions on the subject? She seems to find great difficulty in communicating with MPs on this issue, despite the fact that the gentleman in question was invited to this House by a number of colleagues to address a meeting here last Wednesday evening.

Mr Speaker: I am grateful to the hon. Gentleman for his point of order. Whether the Home Secretary chooses to make a statement on the matter or not is a judgment for her, and it is not something in relation to which I have any formal power. As he will be aware, I, too, was conscious of the fixture of the individual in question. He was to address a meeting in the House, which was perfectly orderly so long as he was not a person of concern, and was freely at large and legitimately so. When that situation changed, the arrangement whereby he would address the meeting also changed. All I would say is that the hon. Gentleman has raised an important point. I know that he has sought communication with the Home Office and at least an explanation of the situation. That approach seems to me to be entirely reasonable, and I hope that his legitimate curiosity on this matter will not for long remain unsatisfied.

Mr Tom Watson (West Bromwich East) (Lab): On a point of order, Mr Speaker. In the past few minutes, it has been revealed by The Guardian newspaper that Milly Dowler’s phone was hacked by private investigators working for the News of the World. The company subsequently revealed the information to the Surrey police, who were investigating the matter. As well as being a despicable and evil act that will shock parents up and down the land to the very core, it also strongly suggests that Parliament was misled in the press standards inquiry held by the Select Committee on Culture, Media and Sport in 2010. Is it possible to know how we can address that matter?

Mr Speaker: My response to the hon. Gentleman is threefold. First, the first I heard of this was when he courteously sidled up to the Chair to mention it to me fewer than five minutes ago. Secondly, my initial procedural advice to the hon. Gentleman is that he might wish to take the question up with the Culture, Media and Sport Committee, which he judges to have been misled or misinformed in this matter. Thirdly, in view of the gravity of the issue he has raised, the detail of which I was not previously familiar with, I can say only that it will have been heard by Ministers on the Treasury Bench and if they judge in the circumstances that some

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sort of public response is desirable—as they might—I hope that that response will be made on the Floor of the House of Commons before it is made anywhere else. I hope that that is helpful.

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Finance (No. 3) Bill

Further consideration of Bill, as amended in the Committee and in the Public Bill Committee.

New Clause 11

High cost credit lending

‘The Government shall lay before Parliament a review of all taxation measures contained in this Act that are applicable to those judged by the Financial Services Authority (or its successor body) to engage in high cost credit lending. This review shall consider the following matters—

(a) the nature of the high cost credit market and the proliferation of lending practices which are detrimental to consumers and or competition in the provision of credit to consumers;

(b) the impact that taxation could have on the provision of high cost credit in the UK which is detrimental to consumers and or competition in the provision of credit to consumers;

(c) whether changes to taxation could discourage lending in a manner which is detrimental to consumers and undermines competition in the provision of credit to consumers; and

(d) other measures relevant to the high cost credit lending sector that may prevent consumer detriment.’.—(Chris Leslie.)

Brought up, and read the First time .

4.47 pm

Chris Leslie (Nottingham East) (Lab/Co-op): I beg to move, That the clause be read a Second time.

We do not often find the issue of high-cost credit lending in the headlines, but it is critical for many people up and down the country. Many of our constituents would expect to see it addressed in the Finance Bill, because there is growing concern that a large number of some of the poorest people in society are becoming prone to high-charging payday lending, doorstep lending, new variants of hire purchase and illegal loan-sharking, especially as the mainstream banks restrict credit availability.

I gather that since 2007 we have seen a fourfold rise in payday lending. The high-cost credit sector is now estimated to be in the order of £8.5 billion in value. The situation is familiar to many hon. Members across the House and particularly so to my hon. Friends, who represent some of the poorest and most challenged constituencies in the country. In my constituency, Nottingham East, the citizens advice bureaux and other advice organisations, such as Advice Nottingham and the St Ann’s advice centre, have recently published an anthology of modern poverty as they encounter so many stark stories of personal indebtedness daily. There are too many instances of companies—legal ones—preying on the vulnerability and desperation of stressed consumers who need to bridge their spending with short-term but, unfortunately, ultra-high-interest credit. A quarter of consumers who use high-cost credit cannot access any other form of borrowing. Apparently, 7 million people in the UK are denied credit and bank accounts that many of us would take for granted.

Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab): May I lend my support to my hon. Friend’s endeavours on this critical issue? Is it not a fact

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that the pressure on debt advice in our constituencies has increased dramatically because of the economic circumstances and the tightening of the criteria for social fund and care grants, and that this situation will get worse as people get caught up in a spiral of borrowing to pay existing debt?

Chris Leslie: My right hon. Friend, who has an excellent track record in raising many of these issues, is completely correct. The vice in which many of our poorest constituents find themselves being squeezed is very much apparent. The changes to the social fund that he mentions are part of the context in which we would want to review the circumstances in which high-cost lending takes place. That is the objective of our new clause 11: we want to examine the possibility of regulatory and/or tax measures to address this problem.

Richard Fuller (Bedford) (Con): The hon. Gentleman mentioned the fourfold increase in payday loans. Would he acknowledge that a substantial amount of that increase occurred in the period 2007 to 2009, at the start of the recession, and that although the rate has subsequently increased, its growth has tapered off somewhat? Does he also agree that payday loans are but a sub-segment of the sub-prime, high-cost credit sector?

Chris Leslie: Yes, payday lending is indeed a facet of the broader problem. I am not sure about the trends and how things have been moving—the hon. Gentleman may have other statistics that it would be worth sharing if he makes a contribution to this debate—but there is no doubt about the trajectory of that growth, which has been quite marked, which I know is a concern for all Members, in all parts of the House.

Lorely Burt (Solihull) (LD): Government Members share Opposition Members’ concerns about this issue, and we want to do the best that we can. However, new clause 11 asks for a report on the impact of all tax and non-tax measures on the cost of high-cost lending when we have not yet heard the response to the Government’s call for evidence. I am hopeful, as are many Members, that this will address the issue and provide further help, so does the hon. Gentleman not feel that his new clause might be a little premature?

Chris Leslie: The hon. Lady makes an interesting point, because it is important that we engage with the Government properly on this agenda. We are still waiting for that report, although I hope that new clause 11 has been framed in such a way as to be pretty harmless and to command widespread support. Ultimately, all that we are looking for is a review of the circumstances; and indeed, some of the tax measures that may need to be included—although they may not—would not currently be part of the arrangements that I understand her hon. Friends are reviewing. New clause 11 is simply about ensuring the widest possible capability for those policy levers that the Government would be able to consider. There are so many measures necessary to help protect the consumer. They include not just action on payday lending or interest rates, for example, but the support needed for financial literacy education—something to which the Government have regrettably taken the axe, by terminating the £26 million financial inclusion fund. That decision is a particular regret, given that it will hit

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citizens advice bureaux up and down the country, along with other face-to-face advice agencies. Indeed, the financial inclusion fund was an essential bit of seedcorn funding, so I would be grateful for the Minister’s clarification about its future.

The Financial Secretary to the Treasury (Mr Mark Hoban): There is no need for clarification: if the hon. Gentleman had done his research properly, he would know that the Government have extended the funding for debt advice for a further year, and it is the intention that the Money Advice Service—which is funded by the financial services industry—will take on that work.

Chris Leslie: I did indeed know of the hon. Gentleman’s announcement of some time ago—not quite a full year yet. We are now into July, and the funding is due to run out next April, expiring at the beginning of the financial year 2012-13. Many advice agencies are quite anxious about what will fill the gap. It is clear that he has kicked the issue to the Money Advice Service, although we do not yet know what its approach will be. One crucial point is whether it will be interested in face-to-face advocacy and supporting such activity.

Yvonne Fovargue (Makerfield) (Lab): Does my hon. Friend agree that the Money Advice Service now constitutes an online source of advice for those who have money on where to invest it and does not address the issue of people who are in debt?

Chris Leslie: My hon. Friend makes an important point. In addition, it does not necessarily address the face-to-face advice that is given by many citizens advice bureaux and other agencies that have been reliant on the financial inclusion fund. The Minister says sotto voce that it will do face-to-face advice as well; I will be interested to see whether the £26 million of investment is maintained. No doubt he will want to clarify that when he addresses the new clause.

I pay tribute to my hon. Friend the Member for Walthamstow (Stella Creasy), whose tenacity is to be commended for the fact that this issue remains front and centre on the political agenda. The Back-Bench motion that was passed last February called on the Government to introduce measures to increase access to affordable credit and to take regulatory action to control non-competitive examples of excessive charging, but we still have not seen any action since then. That is another reason why it is important to move forward and get a sense of priority and urgency into this issue, and this Bill is a good opportunity to consider these matters.

My right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) spoke earlier about why some of this action is needed now. The changes to the social fund and crisis loans that were announced in March—after the Back-Bench motion was passed in February—mean that social fund crisis loans will no longer be available to pay for basics such as cookers and beds, and the living expenses rate is being cut from 75% to 60% of the benefit rate, thereby limiting the number of loans that can be applied for. In addition, there is a backlog of unprocessed claims and the Government are planning to cut the discretionary social fund from £872 million last year to just £183 million this financial year—all under the axe of a Liberal

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Democrat Work and Pensions Minister of State, the hon. Member for Thornbury and Yate (Steve Webb).

At the same time, thousands, if not hundreds of thousands, are being disfranchised from access to credit. After the credit crunch, as the banks recapitalise, we see withdrawal from anything vaguely “sub-prime”, as it may be categorised. However, it is also known that there is money to be made from vulnerable customers. Many hon. Members will have experienced pushy sales calls, which are randomly generated, and text messages, which many people are receiving. It is about the desperate customers that I worry most and their responses to some of those apparent offers of help and assistance. It is all part of the allure of high-cost credit, which we need to regulate far more effectively.

It had been hoped that the promises of mutuality and support for the credit union movement in the coalition agreement would by now have tried to make some inroads into this problem, but despite the promise in the coalition agreement that

“detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry”

would be brought forward, all we have seen from the Government so far is the Northern Rock trade sale, local authority discretionary help for credit union squeeze because of the cuts to their budgetary position and, of course, the Treasury’s pre-emption of the Lloyds Banking Group disposal. The Vickers commission was looking at how to handle that particular issue, but Ministers have pressed on with the disposal of 620 branches rather than pausing and waiting for that report.

At the same time, funding for advice and financial education is falling away, as we have been discussing, as local authorities cannot pick up the tab. The basic problem is that not all customers are informed and logical when it comes to financial issues. The Money Advice Service, as my hon. Friend the Member for Makerfield (Yvonne Fovargue) mentioned, may well be there as a guide for people who have the time and space to make those decisions, but many of our constituents are not only busy but often confused about financial services. They can be distracted and stressed and in many cases they have an aversion to small print. Coupled with that, there is massive inertia in credit services.

There are some fantastic charities, such as Citizens Advice, which I have mentioned, and the Consumer Credit Counselling Service, of which I was a board trustee for five years. They pursue a number of ways to help those in most distress. Creditor-funded consolidation is a very good approach, but we need other reforms in the sector; facets include, for example, the fee-charging, customer-charging debt management plan providers. Charging customers rather than looking to the creditor to cover the administrative costs is an unacceptable business model in this day and age. The practice should be phased out and I hope the Minister agrees.

5 pm

Unfortunately, the consumer credit regulation changes the Government propose still involve too much confusion. There is still no clarity—[ Interruption .]—as I understand it. The Minister may know because he may be able to look into what will happen in the future, but we still

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have no clarity about consumer credit regulation and the powers that may transfer to the financial conduct authority. It will not be a champion of the consumer in its objectives but will have regard only to the

“appropriate degree of consumer protection”,

which in my view is too open to interpretation.

On the prudential regulatory changes, the Bank of England Financial Policy Committee and the Prudential Regulatory Authority have insufficient consumer focus. There will be no PRA consumer panel. There is no voice for the consumer on the Financial Policy Committee. Indeed, it was interesting that the first of the FPC’s reports talked about the risks of forbearance, which may indeed be something the committee needs to deal with, but the fact that it did not even address the point that sometimes forbearance and flexibility are in the consumer’s interest gave me the sense that there was not yet an adequate balance in the composition of that board. The PRA’s duty to consult the financial conduct authority is too weak and, as the Minister knows, I have criticisms of the lack of parliamentary accountability of the new apparatus he is proposing. That too is an area where the consumer voice is being fettered.

I acknowledge that there is no single easy answer to the high-cost credit regulation issue and that there are different approaches to regulation. Caps on usurious interest rates—to use the biblical term—have often been suggested, but there could be consequences. Should we control things geographically, for example where there is inadequate competition? Sometimes deserts emerge, even among doorstep lenders, who have scaled back their activity in recent years, and the illegal loan shark has filled the gap voraciously.

There are cases when taxation of demerit activities might be appropriate, to discourage punitive charges and rates. We need detailed regulation to protect not just the percentage interest rate charged, but the admin fees and product fees that put such a squeeze on the unsuspecting consumer. One of the best ways to look at the regulation of high-cost consumer lending is to consider time limitations on the use of payday lending. Should we say that such lending is absolutely for emergency circumstances and it should have only short-term availability? Unfortunately, we see people go back to payday lenders month after month, and even year after year. Excessive long-term dependency on payday lending needs to be addressed.

Lorely Burt: I entirely agree. I had a meeting with Wonga the other week. The company advocates a maximum of three rollovers. It is in nobody’s interest, not even the lender’s, to have people in a cycle of debt, because they are less and less able to pay it off. Perhaps something like that could be included in the regulations.

Chris Leslie: The sector itself ought rapidly to produce suggestions for self-regulation. I hope the new clause will make the sector aware of the seriousness with which the House takes the issue. We have had enough of people in desperate circumstances being exploited. The House of Commons passed a motion in February. We should pass the new clause, simply to ask for a review and a report on the range of regulatory and financial powers that the Government ought to take to stamp out some of the worst practices.

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Customers need a fair deal from financial services generally, but our duty is to start with the people who are most at risk—the vulnerable and the exploited. If Parliament cannot stand up today to protect those most in need, who will?

Neil Parish (Tiverton and Honiton) (Con): I rise not to support the new clause but to say to Ministers that I would like to hear exactly what they intend to do about doorstep lending. The hon. Member for Solihull (Lorely Burt) mentioned Wonga, which can charge up to 4,500% interest on its loans. Uncle Buck can charge 2,500% and PaydayUK can charge 1,200%. With a base rate of 0.5%, how can charging such inordinate interest be justified? These companies—I call them all loan sharks, to be blunt—travel around our poorest areas. I would be the first to admit that my constituency is not the most deprived in the country, but I have many poor and vulnerable constituents, and I think that Members on both sides of the House are concerned about what action we should take.

I know that Ministers are not keen on dealing with this problem through regulation, but perhaps we should consider our approach to smoking: we do not stop people smoking—although we have banned it in public places—but we put large health warnings on cigarette packets. The Financial Services Authority, or whichever body will be responsible, should at the very least take action so that there are serious health warnings for those considering taking out these loans.

Mr Jim Cunningham (Coventry South) (Lab): Does the hon. Gentleman agree that one aspect that should be looked at is television advertising?

Neil Parish: The hon. Gentleman is right that the advertising and promotion of these products is a great concern. These products can seriously damage someone’s financial health, because they not only get them into huge debt, with huge interest to pay, but can often prevent them from securing mainstream credit, which can affect them enormously.

I am not greatly in favour of regulation, but I do not think that we can stand idly by and let some of the most vulnerable people in the country be exploited. They are desperate for money, and people knock on the door and offer them it. In fairness, many of them do not look at all the details or consider the fact that they will have to pay such high interest if they do not repay the loans. They do not realise that they will probably be charged even more interest if the loan is renegotiated, and that if they do not pay on time the loans company is likely to impose huge fines. That is unacceptable in this day and age and we must do something about it.

About 50% of the population in Ireland are involved in credit unions. In the US and Canada, the figure is about 40%, in Australia and New Zealand it is about 25%, but in the UK it is only 2%. I know that the Government are looking into increasing the availability of credit unions across the country, but we need to act much faster. In the meantime, we have to act against these companies, the loan sharks, because people who take out the loans sometimes have to pay back 10, 20, 30 or 100 times as much as they originally borrowed.

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If the loan sharks’ argument is that they lend on those terms because the people to whom they lend are a security risk, we must question whether they should lend the money in the first place, and certainly at such massive amounts of interest. They must take the view that if 25 of the 100 people to whom they lend are forced into bankruptcy they will make enough money from the other 75 to make a profit. Is that moral and right? The answer is certainly not. Regardless of one’s political persuasion, that cannot be right in this day and age.

I have mixed views on the new clause, but I do not want Ministers to wring their hands and say that there is nothing they can do. In fairness to the Government, I should point out that the Opposition cannot hold their heads high, because they had 13 years in which to do something about this issue. It is right for the coalition Government to take the issue on. Instead of wringing our hands and saying we can do nothing, let us do something.

Lorely Burt: My hon. Friend is talking, almost interchangeably, about loan sharks and high-cost credit lenders regulated by the FSA. The Government have put even more money into the loan shark operation to clear them from the streets. It is important that we do not mix the two, because whatever one thinks about high-cost credit loan companies they are at least regulated and we are doing things to improve them. Loan sharks are totally unacceptable in this country.

Neil Parish: I agree with the hon. Lady to some degree, but I say to her bluntly that charging 4,500% interest, whether it is done legally or not, is theft. As a farmer, perhaps I have slightly jaundiced views about bankers, who offer an umbrella when the sun is shining and want to take it away when it starts to rain. We cannot go on letting vulnerable people be exploited—it does not matter whether it is being done legally.

David Rutley (Macclesfield) (Con): My hon. Friend makes a powerful point. The challenge is that people always say that we have to do something about this issue, but it is never clear what that thing is. For me, the vital thing is awareness. The issue is not just loan sharks but extends to organisations such as BrightHouse. Does my hon. Friend agree that people need to understand the true cost of what they are borrowing?

Neil Parish: I share that view entirely. At the start of my speech, I spoke about a financial health warning on a loan, including what the rate of interest will be. There should also be an example, perhaps showing what the principal amount would be to repay if one started with £100.

Stella Creasy (Walthamstow) (Lab/Co-op): I support the hon. Gentleman. Does he agree even when people know the rates, they have little choice because they cannot borrow from any other type of organisation? Research shows that a quarter of these companies’ customers cannot get credit elsewhere, so even when they know the rates they have no option.

Neil Parish: The hon. Lady is right that parts of the population cannot borrow elsewhere, which is a problem. That is another reason for clear warnings, if not restrictions, on the rates of interest charged.

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The problem is not just that there is a population who cannot borrow from anywhere else but that many companies and loan sharks knock on people’s doors. Credit is often dished out in cash, which is very tempting. Some people could, if they went to a great deal more trouble, secure money from proper lending companies at a competitive rate.

Mr Jim Cunningham: People also borrow against their wages, which puts them on a financial treadmill that is hard to get off when there are such extortionate interest rates.

Neil Parish: The hon. Gentleman refers to payday loans, which also incur huge amounts of interest.

I am not against people being able to borrow. In a capitalist system, people need to be able to do that, but we must stop companies exploiting people’s vulnerability and lending at such vast rates of interest. That can be achieved either by legislation or by companies having to provide a clear statement of what a loan will cost when their representatives arrive on somebody’s doorstep and try to lend them money. If someone who borrows £100 will end up paying £2,000 back, that should be absolutely clear. That is the very least I should like the Government to do.

I have made, I hope, many good points, and I hope too that the Government will not just wring their hands but do something to help vulnerable people and stop legal loan sharking companies taking money from people in a way that I believe is theft.

5.15 pm

Stella Creasy: I have come here today to speak in favour of the new clause, and to vote for it, too, which I believe will be a powerful expression of the need to act to tackle the problems caused across our country by high-cost credit companies, or so-called legal loan sharking.

I promised when the House debated the issue previously that I would congratulate those who took action to protect vulnerable consumers, and I want to do so. I welcomed the announcement of the consumer credit review and the coalition agreement promise to tackle the cost of borrowing on store cards and credits, but it worries many of us that it is already overdue. To meet the timetable, that work will have to be done within the next two weeks.

Even more worrying for the Opposition is the fact that we have had to drag the Government kicking and screaming to the table to discuss high-cost credit, because the coalition agreement made no commitment to tackle it. There is still uncertainty about whether it will be tackled in the consumer credit review.

Andrew Percy (Brigg and Goole) (Con): I am a huge supporter of what the hon. Lady is trying to do. I agree that there is concern about how quickly we are moving, but we had 13 years of her party’s Government. Can we try to keep this a cross-party matter? Members of all parties are concerned about it, so let her not bash the Government, and when I speak I will not bash the Labour Government for their inaction. Let us all try to keep it positive.

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Stella Creasy: I very much hope that there will be cross-party agreement, but, as I will explain, I fear that that consensus is being broken for the purpose of choreographing coalition conferences. That worries me greatly. I hope the hon. Gentleman will agree that when so many people are suffering by having to pay the high costs of credit that companies charge, any delay is unacceptable, and I hope he will vote accordingly.

I know that we are not alone in wanting action as soon as possible. The campaign has the widespread backing not just of MPs or policy makers but of debt experts, campaigners and members of the public. They are deeply concerned that doing nothing to regulate these firms is feeding a growing crisis of personal debt for families across the country, and they want action.

I fear that I am going to end up condemning the Government today, because we are debating not whether to act, or whether regulating for a cap on the cost of credit would be effective, but when to do so: debating when, not if, is unforgivable.

Neil Carmichael (Stroud) (Con): I am concerned that the action that the hon. Lady recommends might well drive people into the worse position of having to appeal to really rather unpleasant loan sharks. That must be the great worry.

Stella Creasy: The evidence on which that presumption —that myth—is based is very uncertain. I would argue that there is a strong parallel with the debates on the minimum wage and the fear that its introduction would drive companies out of business. We now know that that is simply not the case. Evidence shows that a cap on the cost of credit would lead to a fairer deal for consumers, for which we are arguing today. It is important that we get it right, given the number of people involved in the market. I ask Members to support the new clause because it proposes regulatory action now, given the consensus that there is a problem. It states that it covers

“other measures relevant to the high cost credit lending sector that may prevent consumer detriment.”

By consumer detriment, we mean lending that drags people into debt.

We might all agree that there is a problem in the market, and that something needs to be done, but the coalition’s choreography is getting in the way, and I fear that our constituents will lose out. In making the case for Government Members to change their mind about the political fancy footwork and instead dance with us to action now, I want to set out what the problem is, what is causing it, what could be done about it and why doing nothing, or even delaying doing anything, should not be an option.

This question is important when we are debating a Finance Bill, because we can use taxation and regulation to deal with social and economic problems. For example, we could tackle problem drinking by raising taxes on high-strength alcoholic drinks. Indeed, in Committee, the Economic Secretary to the Treasury said:

“We can see that such a measure will have a disproportionate impact on tackling problem drinking, because the change in taxation will make it less attractive for producers to make such strong products.”––[Official Report, Finance (No. 3) Public Bill Committee, 17 May 2011; c. 166.]

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By the same principle, the Treasury could tackle problem lending by penalising companies that fail to meet certain standards in their provision of consumer credit.

The problems in the lending market make the issues clear. The UK has one of the highest levels of personal debt in the world. As of April last year, Britain owed more than £1.4 billion in private debt. As the hon. Member for Tiverton and Honiton (Neil Parish) pointed out, borrowing money is sometimes essential, whether to enable someone to pay for training or a house, or to start a business. Indeed, borrowing is critical for our future economic recovery. I am therefore saying not that we want to stop people borrowing, but that we want to stop problem borrowing. However, the current signs are that personal debt is on the rise, and that is a problem.

Pat Glass (North West Durham) (Lab): Does my hon. Friend agree that the evidence suggests that this country is now becoming a haven for such companies, which are targeting this country because of the lack of regulation? Does she also agree that that is making things far worse for our constituents?

Stella Creasy: My hon. Friend is exactly right. It is not just evidence; the companies have specifically said that the lack of regulation in the UK compared with other countries makes it a target market for them.

We know that borrowing is becoming a problem for people. More than four in 10 people are worried about their current debt, and in recent months 4 million have taken on more debt than they ever have before. One third of families say that they have no emergency savings whatever. However, this debate is not about a lack of rainy-day money. The number of people who say that they are likely to exceed their overdraft limit has more than doubled in the past year, and the number of people who say that they are likely to use an unauthorised overdraft this month has nearly doubled since July last year, from 900,000 to 1.6 million.

That means that more people are getting into financial difficulties. In recent years, personal insolvency in the UK has reached a record high. On average, there are more than 160 personal insolvencies every year in each constituency, which is a dramatic increase since the start of the last decade.

New clause 11 covers not only those who are formally in financial difficulties but those who are affected by debt and who have not sought help. The proposal reflects the growing inequality in our society between those who can borrow affordably and those who cannot. Research by the Department for Business, Innovation and Skills shows that most households have a debt-to-income ratio of 10% or less, but that one in five households have debts worth more than 100% of their annual household income. There is growing evidence that such households are using multiple forms of unsecured credit—a mixture of high-cost credit and credit cards. Thirteen per cent. have four or more types of debt.

The question for many of us is this: who is borrowing? Eleven per cent. of lone parents use non-mainstream loans compared with just 3% of households overall. The Consumer Credit Counselling Service tells us that one in eight people who contacted it during the first half of 2010 were claiming jobseeker’s allowance. However, one thing that might concern many hon. Members is the growing evidence that the people who are suffering

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in this market are not just those whose incomes have always been fragile, but many middle-class families. Experian data show that the biggest increase in insolvency is among those with suburban mindsets—people who are in work, married and have kids, and who are trying to make ends meet.

Lorely Burt: Is it a matter of regret to the hon. Lady that the previous Labour Government presided over the greatest expansion of consumer credit in the history of this country? In their 13 years, the previous Government tried to do a number of things, but rejected the proposal in new clause 11. Does she agree that this Government, one year in, should be given the opportunity to finish their consultation and make proposals of which she might approve?

Stella Creasy: I am interested in the hon. Lady’s impression that consumer credit is a bad thing, because I do not agree. I would also be interested in her views on research by the Office for Budget Responsibility, which shows that as a direct consequence of the Government’s Budgets an extra £10,000 of debt is being put on to households. Perhaps she would like to comment on the implications of that for family finances. No? Then I will continue.

The problem is not just the high-cost credit industry but the nature of the industry and the way in which it operates, which is causing so many problems. What most worries many Opposition Members is that so many families are struggling. Indeed, we know that 46% of families say that they do not earn enough in a month to pay all their bills. Crucially, of that 46%, 10% say that the reason they are struggling is the repayments on high-cost credit. It is those very products that are pushing them into financial difficulty.

For the avoidance of doubt, I say clearly that I am not trying to put Wonga and the other companies out of business. I do not hold with the constituent of mine who argued that we should learn a lesson from Dante and put them in the seventh circle of hell, but we can make the credit market fairer for all concerned. It is important to set out, therefore, the kind of companies we are talking about and just how quickly this industry is growing in the light of recent economic circumstances.

Many people know about payday lending—the form of credit whereby a borrower gives a creditor a cheque or an authorisation to make an automatic withdrawal from their bank account. That is used as security for a short-term loan to be repaid, supposedly on the next payday. It is a long-established form of credit in other countries, but it is relatively new to the UK—and it is growing rapidly. By 2009, the payday lending industry was worth more than £1.2 billion, and the figures I have gathered from the Department for Business, Innovation and Skills, which were released under a freedom of information request rather than being put in the public domain, show that it is now worth £1.9 billion. Indeed, in its “Keeping the Plates Spinning” report, Consumer Focus estimates that payday lenders are expected to quadruple the scale of their operations in the UK in the next few years alone.

Richard Fuller: The hon. Lady says that the payday lending market was £1.2 billion in 2009. According to the Office of Fair Trading review of the payday loan

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market, it was £600 million. To clarify the situation, and for my education, will she explain the difference between the two numbers?

Stella Creasy: I will happily explain the difference between the two numbers. The hon. Gentleman might have heard me say that I made a freedom of information request to obtain the most up-to-date data from the Department, and it is a source of concern that Ministers did not share the information with MPs. Research shows clearly that the market has grown to £1.9 billion. If I tell the hon. Gentleman that 5% of the population have taken out a payday loan in the last year, representing 2 million, perhaps he will understand the discrepancy. Perhaps he might like to account for why the Government did not want to put that information in the public domain.

Richard Fuller: I just wish to point out to the hon. Lady that I think there is a lot of consensus, which I hope she does not destroy in her passion for this issue.

As a point of clarification, the 5% figure in the OFT’s analysis came not from the payday loan market but from participation in the high-cost credit market, which includes credit unions and credit cards. Given that my source is the OFT, perhaps she will clarify that point too.

Stella Creasy: I am happy to share the figures with the hon. Gentleman, although I am afraid to say that his interpretation is incorrect. One of the things that I have done—perhaps I am getting a reputation for it in the House—is my homework on this market, and I have sought as much accurate information as possible. That was why I made the freedom of information request, and I would be happy to share the data with him. One of the challenges is that the Government have information about how quickly this market is growing, but they are timid about confirming it.

Nic Dakin (Scunthorpe) (Lab): My hon. Friend is setting out carefully and deliberately the challenges that people face. Does she agree that the exponential growth in this high-cost credit lending is the very reason the Government need to act to address this issue sooner rather than later, in line with the consensus across the House?

Stella Creasy: I absolutely agree. I am quoting research by the consultancy practice, R3. It is conducting surveys because it is worried about the mix and range of credit that people are taking out and the high-cost credit itself, which is causing people to get into debt. That is why I am passionate about tackling the problem sooner rather than later. Contrary perhaps to some of the briefings that hon. Members might have had from the payday industry, the majority of people borrowing from these companies are on comparatively low incomes. In particular, one in 10 UK payday customers has an income of less then £11,000, and 46% have incomes of less than £15,000 a year. It is evident how quickly high repayment charges eat into an already meagre wage.

5.30 pm

This debate is not just about payday lending; it is also about some of the other forms of high-cost credit equally untouched by regulation in this country, including home credit. I know that some Government Members

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are concerned about home credit, particularly the provision of small cash loans to be repaid by instalment to collectors who call at home. A company named Provident, with which many people in the House will be familiar, has noted that its customer base has increased by 20% since 2007. It is now lending money to nearly 1.8 million people in this country.

This debate is not just about home credit either; it is also about hire purchase agreements and other methods of buying goods by instalment but under contracts that have heavy penalties written into them. BrightHouse, which has been mentioned, is also growing at a tremendous rate. In its annual report for 2009-10, it reported having had its busiest year ever, posting 13.7% growth in what it termed “contract receivables”, standing at nearly £298 million. It has opened 21 new stores in the past year, increased its customer services by 20%, and grown fourfold since 2006-07.

We know that a number of factors are driving demand for these products. I agree with those who ask what more the mainstream banks could do to service this group within our community. We need to ensure that people are lent money at affordable rates, and mainstream banks must play their part. PricewaterhouseCoopers’ research notes that a growing proportion of consumers are now facing the shock of being denied credit from mainstream lenders. We know that about 5 million to 7 million people in Britain are denied credit either because they do not have a bank account or because they have no credit history. That leaves many people with only the option of unsecured lending, including from payday or doorstep lenders.

We also know that the cost of living is pushing people to borrow to make ends meet. The Institute for Fiscal Studies recently warned that households are looking at the largest fall in their disposable income since 1981. Prices are rising twice as fast as income. What does that mean on an everyday basis? It means that the cost of living is rising. Asda’s income tracker shows that the average UK household is £13 a week worse off than it was a year ago, as inflation eats into what is left of wage packets. We know that price-sensitive commodities are part of that mix. Petrol accounts for 12% of the average household’s budget, although that is likely to change, and I suspect that energy prices might vie with petrol prices in the costs they add to households.

We also know how vulnerable many in our community are to a change in interest rates. Some 30% of those buying a property in 2007-08 relied on 100% mortgages, so they are especially vulnerable to signs of change. A 2% rise in interest rates would lead to a £307 increase in monthly mortgage payments across the country, and already people are struggling to pay their mortgages and using high-cost credit to meet their costs.

Stephen Williams (Bristol West) (LD): The hon. Lady just made the hypothetical point that a 2% increase in interest rates would cause those costs to rise. Undoubtedly that might be true were rates to rise, but they have not risen, and one reason market interest rates have not risen is that the Government are dealing with the deficit at a time when the Labour party has not come forward with any policies to tackle the emergency.

Stella Creasy: I hope that the hon. Gentleman is not being complacent about the cost of living, its impact on people in his constituency and the fears of many about

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what an interest rate rise would mean for their monthly mortgage payments. One thing that worries me is that a lot of people are borrowing just to make ends meet; they are borrowing not for investments, holidays or fancy televisions, but to pay their rent and mortgages and to put food on their families’ tables. His complacency about interest rates not rising any time soon is misplaced.

David Rutley: I have heard the hon. Lady speak with passion in this debate and others, and I respect the point being made. However, some of the points being made by Government Members are important, particularly those concerning fiscal constraint and household spending constraint. The gap in her argument is that it is vital that households bear down on their spending. It is not just about the cost of financing a television or whatever else; it is about not going for it in the first place. There is a wider scope for this argument. This debate is not just about the cost of the debt, but about people avoiding it in the first place by lowering their expectations of what they need.

Stella Creasy: I would be interested to hear the hon. Gentleman’s advice to the nearly 500,000 Londoners who are having to use their credit cards to pay their mortgage or their rent. Right now, people are borrowing to pay for everyday essentials, and I fear that he sounds a bit like Marie Antoinette saying that people should just eat cake. That is very misplaced, given the dire financial situation that many people are finding themselves in, certainly in my constituency and, I will wager, in his as well.

Indeed, Shelter’s research shows that it is not only people in London who are using their credit cards to pay their mortgages. There are 2 million people in this country who are doing it. It is horrifying to think of the situation that those people are getting themselves into, given the interest rates that they are paying on their mortgages, let alone the rates that they are paying on their credit cards.

We also know that changes in the cost of living affect some more than others. The Resolution Foundation points out in its low earners audit that those on low to middle incomes spend a higher proportion of their incomes on the goods and services that are hard to cut back, such as their housing, their fuel, their transport to work or the food that they put on their children’s plates. That is what the hon. Gentleman is talking about. Those low to middle income earners spend 40% of their spending on those everyday essentials, compared with the 26% spent by higher earners. One in five pensioners have had to cut back on essentials such as food because of the rising cost of living.

This is not just a demand-side issue; it is also about the way in which the high-cost credit market is stacked against the consumer. That is why I believe that the market merits regulation. In order to make its profits, the high-cost credit market makes use of a number of the attributes of the people who have to borrow from it and of the way in which the market is structured. As has been mentioned, a quarter of the customers of high-cost credit companies cannot access any other form of credit. Indeed, Consumer Focus’s research shows that many users of payday loans are unable to access mainstream credit such as overdrafts because they have already maxed them out. That means that they have no choice; they have no power to shop around for a cheaper loan.

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Also, they cannot build up a credit history that would show a mainstream lender, who might lend at a lower rate, that they could be trusted to pay a loan back.

Because high-cost credit companies have fixed costs, they make their money by repeatedly lending to people. That means that their business strategy is geared towards encouraging repeat borrowing and the rolling over of loans. Friends Provident has found that 29% of payday loans are refinanced, with the refinancing rolling over on an average of two occasions. Some 15% of home credit loans are refinanced and rolled over into a new loan before the end of their term. It is worth explaining what that means for the cost of borrowing from these high-cost credit companies.

One person who got in touch with me took out a loan of £650 with Wonga, in two instalments, to be paid back within a month. When the repayment date arrived, he found that he could afford to pay only the interest that had accrued on the £650, which was £163. The original £650 loan was then rolled over for another month. At the end of that month, he paid off the loan, which cost him another £858. That was the original £650, plus interest of £208 accrued in the second month. The clock starts ticking in the first month of these interest payments, which is how 4,500% interest rates are reached. The longer a loan is rolled over, the closer it can get to the 4,500% APR that Wonga charges. The process of rolling over meant that he had paid £1,021 for borrowing £650 over two months. It is difficult to see what level of cap on the number of roll-overs would make a difference in this market, because the industry consistently refuses to release information about its business model. We can therefore only guess at the impact that the number of roll-overs has on people’s debts.

Furthermore, we know that the rates charged by high-cost credit companies often do not reflect an economic rate, due to a lack of competition in the market, a lack of regulation to drive down costs, and the absence of any ceiling being set. I recognise that using APR is problematic in understanding the cost of borrowing, especially in the payday loans industry, but as a yardstick it can help us to illustrate the issue. We know that payday loans can cost 4,500% from Wonga. They can cost 2,100% from Uncle Buck, 1,200% from Payday UK, and 1,700% from KwikCash.

John Woodcock (Barrow and Furness) (Lab/Co-op): I apologise for coming in late to the debate. My hon. Friend uses the same tube line as I do. Did she notice on the way in that one company was advertising on the tube, offering a decision by text within a minute for a loan at an APR of 1,734%. That cannot be right; we have to do something to crack down on it.

Stella Creasy: I agree absolutely with my hon. Friend. There is no ceiling on this market, which means that company rates are going up, not down. We also know about the lack of competition with other sections of the market. Provident owns 6% of the market. In 2004, the Office of Fair Trading referred the doorstep lending industry to the Competition Commission and, in 2006, its report confirmed the lack of competition. As Citizens Advice argues, however, the fact that these problems are getting worse, not better shows that the measures suggested in 2006 have not worked and that it is time to strengthen the intervention we make in this market.

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Although I am an avid supporter of the credit union movement, it cannot at this moment present any kind of alternative to this market within any relevant timetable. Credit union membership is growing by 8% a year, but the payday lending industry alone is three times as big as it was two years ago. Credit union lending therefore remains relatively small scale, equivalent to just 5.9% in value terms of the high-cost commercial sector. As a consequence, it is unlikely to exercise any real competitive restraints on the prices in the high-cost credit sector.

With all the signs that this market is growing exponentially, this new clause and the review it recommends would allow us to look at a number of issues on how to tackle it effectively. First, it could consider excess profits—

Neil Carmichael: Will the hon. Lady give way?

Stella Creasy: Briefly, as I am conscious of the time.

Neil Carmichael: I thank the hon. Lady for giving way. I think that credit unions are really important. I have promoted them in my own constituency and I will continue to do so. I have joined one myself to demonstrate that it is something that we should all think about. Surely it would be a good idea to put out a more positive message about the role credit unions can play and encourage people to start thinking about being responsible in the management of their finances through the use of credit unions.

Stella Creasy: The hon. Gentleman is being a little unfair to accuse me of not putting out a positive message about credit unions, given that I worked long and hard to set up the Waltham Forest community credit union and to secure it more than 4,000 members from my borough. My point is that when only 2% of the British public are part of a credit union, it cannot be the answer to the problems caused by these companies. The question is how to get the right mix, and I believe that regulation needs to be part of that mix. Of course extending access to affordable credit is part of the solution, but it will take decades for credit unions to provide a serious alternative to these companies from which people are borrowing and getting into debt with now.

Frank Dobson (Holborn and St Pancras) (Lab) rose

Stella Creasy: I will give way very briefly.

Frank Dobson: In response to the intervention by the hon. Member for Stroud (Neil Carmichael), is it not a further problem that because of the cuts to citizens advice bureaux, welfare rights units and law centres, good advice, which might help people to steer clear of loan sharks, is less and less available? As the years go by and the cuts continue, the problem will get even worse and the inequalities will grow.

Stella Creasy: 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.

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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.

5.45 pm

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

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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 to improve the fortunes not of the Lib Dems, but 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

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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.

Tracey Crouch (Chatham and Aylesford) (Con): Having listened to the lengthy speech made by the hon. Member for Walthamstow (Stella Creasy) in the Public Bill Committee, and having checked Hansard to find that it was almost identical to the speech that she just made, I congratulate her on raising, yet again, both her profile and the issue of unscrupulous and high-cost lending. As she knows, she has a great deal of cross-party support on the underlying problem, but I fear that her new clause has little to do with identifying a workable solution, and I found her speech today disappointingly partisan.

I have been rather bemused by the hon. Lady’s recent Twitter stream, which refers to the campaign to persuade Members to vote for her Consumer Credit (Regulation and Advice) Bill. Perhaps she does not realise that we are voting today not on her Bill—although many of us may agree with its principles—but on amendments to the Finance Bill. For reasons that I shall give later, her new clause is fundamentally flawed.

The problem of vulnerable consumers being preyed on by high-cost credit lenders is not new. It did not suddenly appear following last year’s general election. It is a problem about which Members in all parts of the House have felt strongly for some time. My constituency contains areas of severe deprivation, and I deal regularly with case work relating to debt. I am active locally in trying to ensure that those with debt understand that there are good people to turn to, such as local credit unions and citizens advice bureaux, and that they need not rely on high-cost credit lenders.

Through the local media I have highlighted my own earlier debt problems, incurred when I worked as a researcher here in the House of Commons in the mid-1990s. I have received messages from local people saying that it was brave and courageous of me to be so honest, but I do not think that it was anything of the sort. I saw it merely as a way of removing some of the stigma from debt, and demonstrating not only that anyone from any background can get into debt, but that there are good people out there who can help to put those in debt back on the right track.

Increasing debt is an issue that should concern Members in all parts of the House. It, too, is not a new issue. I remember talking about the nation’s personal debt topping £1 trillion before I entered the House. For some time my local citizens advice bureau has been advising clients with debts totalling £1 million per week, including priority and non-priority debts, but the figure is now nearing £3 million per week. Unfortunately, Medway has a high repossession rate: on average, about 70 repossession hearings take place each week. In these worrying times, what we do not need are unscrupulous credit lending and, indeed, debt management companies taking advantage of those who are in financial trouble and at their most vulnerable.

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The new clause proposes taxation measures as a means of clamping down on, or even stamping out, the industry. I fear, however, that the Opposition have not thought it through in any great detail. For a start, they have not addressed its unintended consequences. It is likely that any additional tax on the companies in the industry, just six of which control about 90% of the market, would simply be passed on to the consumer in the form of even higher rates. What is being proposed as a solution to the problem could exacerbate it by increasing the cost to the consumer and creating an even larger debt.

Sheila Gilmore (Edinburgh East) (Lab): The new clause asks for a review and a report. It does not suggest that the proposed measures should be implemented immediately. I fail to see the detriment that the hon. Lady seems to have identified.

Tracey Crouch: The hon. Lady obviously did not listen to the Minister’s response to a point made earlier. As he said, a review is currently taking place. The new clause proposes

“a review of all taxation measures contained in this Act”.

I think that, on this occasion, the hon. Lady is wrong.

Andrew Percy: Surely any tax review is likely to come up with a suggestion for raising taxes. It is unlikely to propose that taxes should be cut. If that is on offer, however, I certainly do not intend to vote for a measure that would cut the taxes of the people whom we are discussing.

Tracey Crouch: My hon. Friend makes a good point. Whether or not the tax goes up following a review—and the hon. Member for Walthamstow will probably say that it will go up—the result will be passed on to the consumer.

Organisations such as Citizens Advice recognise that the problem of debt is not confined to the high-cost credit industry. It is also caused by other practices, such as irresponsible lending, the imposition of high contingent charges, and the mis-selling of debt management services. I am not a supporter of the high-cost credit industry, but a tax on one part of the sector would not only be anti-competitive, but would not address problems in other parts of the consumer credit market.

The simple truth is that the industry needs better, if not more, regulation. Although the House may not often hear Conservatives say that we need more regulation, a number of Government Members believe that in this context, and particularly in the context of debt management, it is the appropriate solution. We have met the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey), and have told him that.

Duncan Hames (Chippenham) (LD): The hon. Lady is right to refer to the need for regulation. What troubles her more, the profitability of high-cost lenders or the techniques that they use to entrap their customers? Does that not provide a clue to where we should focus any Government interventions?

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Tracey Crouch: That is a good point. In fact, what troubles me most is the impact on consumers. As we have been told by Members in all parts of the House, these companies prey on people who are incredibly vulnerable, and we need to ensure that the industry behaves much more responsibly.

A response to the Government’s call for evidence on consumer credit is due shortly, and I look forward to the findings of the review. I have always had some sympathy for the proposal of a rate cap. However, it is interesting to note that Citizens Advice does not share the hon. Lady’s view, and nor does the money-saving expert Martin Lewis.

Stella Creasy: It is true that Citizens Advice opposes a cap on interest rates, but I think the hon. Lady will find that both it and Martin Lewis have been very positive about the proposal for a cap on the total cost of credit, which the new clause would allow to be investigated. I hope that the hon. Lady will correct the record accordingly.

Tracey Crouch: The total cost of credit involves more than just the high-cost lending industry, but the hon. Lady spent most of her speech talking about individual high-cost credit lending companies such as Wonga. We must find a focus, and the fact is that wider issues of consumer credit are involved. I hope that the review will come up with a solution on which we can all agree.

The Government are considering specific product regulation as part of their draft Financial Services Reform Bill. Under the proposals to establish the financial conduct authority, a new model of conduct regulation will be established that will use early and proactive intervention to ensure that consumers are protected. That is a far more pragmatic solution than the blunt instrument of taxation, which, as I noted earlier, could have the adverse and opposite effect of creating a greater problem.

Oliver Heald (North East Hertfordshire) (Con): Does my hon. Friend share my concern about the fact that it is often very convenient, and made very easy, for a person to take out a loan? A door-to-door salesman may appear and try to build a relationship with someone. Part of the battle is to provide responsible institutions such as credit unions, and to ensure that people know how to contact them. I think that there should be far more advertising and signposting so that people know how to get in touch with their local credit unions.

Tracey Crouch: I met the members of Kent savers credit union on Saturday, and look forward to meeting members of the Medway credit union in the autumn. I am a keen supporter of credit unions, and I think that all of us here are responsible for ensuring that our constituents are aware of alternatives such as lending and debt management advice. Citizens advice bureaux also offer a fantastic service. We should take it on ourselves to ensure that the message reaches our constituents.

The House should know that there is a cross-party consensus on this issue, and that the consumer credit market—particularly the high-cost credit industry—is an area of concern. In Committee, new clause 11 was billed by the hon. Member for Walthamstow as a measure in line with nudge economics. While there are some

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taxes that have arguably altered behaviour, such as those on cigarettes, it is highly unlikely that a tax that could be passed directly to the consumer will halt the growth or the unscrupulous practices of the industry. It would be far better to concentrate on regulation rather than taxation, and it is for that reason that I urge Members to vote against the new clause.

6 pm

Mrs Jenny Chapman (Darlington) (Lab): I congratulate my hon. Friend the Member for Walthamstow (Stella Creasy) on initiating and devising this new clause. The UK is a long way behind other countries in its regulation of this sector. Action is being taken in the United States and elsewhere in Europe, and therefore increasing numbers of companies are seeing the UK as the ideal place to operate because they know we are behind in respect of regulation. Indeed, as they do not anticipate regulation any time soon, they also do not anticipate leaving the UK in the near future, and they consider now to be a good time to invest in the UK market. Therefore, BrightHouse says it will triple its number of high street shops here in the UK. That is not only a worry for consumers, who are, by and large, exploited by these companies; it is also a threat to our high streets, because I for one do not want my high street to have signs saying “Cash for gold” and shops such as BrightHouse; I do not want what I would call unscrupulous companies populating our high streets.

The high-cost lender lobby is lobbying within an inch of its life. It is inundating those of us who are speaking out on these issues with documents, offers to meet, conversations and phone calls about why it is right and we are wrong. However, Members who represent places such as Darlington see the effects week in, week out in our surgeries, so we know the impact that these companies are having. They are not doing what they do for the benefit of the consumer, as they would lead us to believe; they are doing it because it is a pretty good business for them. I do not have an issue with their having a good business and making money, but I do have an issue with people who are least able to make such financial decisions being exploited in this way, and that is what is happening.

I am not a big fan of Jeremy Kyle, but in the interests of research I have sat through a bit of morning television, and I was disgusted at what I saw on our screens. Such companies are deliberately targeting people who are at home during the day and who they know are on low incomes. They are making their products look affordable, easy and cheap, which they are certainly not, and, most disturbingly, they are making them look the norm. They are making these products appear to be an everyday solution of which people from all walks of life throughout the country are taking advantage. That is the single most concerning aspect of this market.

Lorely Burt: I must confess, somewhat ashamedly, that I have also seen Jeremy Kyle’s show and the advertisements that accompany it. I want to pick up on the fact that Labour Members do not feel it appropriate to meet short-term loan companies. I do not tweet, but it is my understanding that the hon. Member for Walthamstow (Stella Creasy) says that Wonga has refused to meet her. That is not the case, however. [Interruption.] This is my understanding; I am just going on a letter

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from Wonga, and I do not want to get involved in the dispute. My point is that we must fully understand the situation. The hon. Lady knows it intimately; I do not deny that.

Madam Deputy Speaker (Dawn Primarolo): Order. This is supposed to be an intervention, not a speech. I call Jenny Chapman.

Mrs Chapman: I am unclear as to the point that was being made, but I recommend that the hon. Lady follows my hon. Friend the Member for Walthamstow on Twitter, as she might therefore become more familiar with my hon. Friend’s efforts to secure meetings with senior officials at Wonga and might also understand the frustration felt by Labour Members. It is frustration not only with the high-cost lenders, but with the Government too. Five months ago, the Backbench Business Committee initiated a positive debate on this issue, but there has been no movement since then—no announcements and no indication that something is in the pipeline. That fosters a great deal of frustration and a lack of trust among Opposition Members.

Neil Carmichael: The hon. Lady is expressing her case very well, and I sympathise with everything she is saying. However, is she not impressed by the work of, for example, the Office of Fair Trading in issuing its guidelines, and does she not recognise that it has the power to withdraw licences if the guidelines are not respected? I could also draw her attention to a number of other possible actions that have been put in place to enable movement in the direction in which she rightly wishes to proceed.

Mrs Chapman: All those steps are very welcome, but they do not go very far at all in addressing the fundamental issue. The Competition Commission says that what the OFT wants to do is nothing like enough. I understand the hon. Gentleman’s intention: it is to give the Government a background against which they can decide not to support this new clause, but we are trying to force this issue to the fore and get something done about it. We are all for cross-party consensus—that is wonderful when it can be achieved—but what we actually want is something to be done. I hope the hon. Gentleman will therefore forgive Opposition Members if we are sometimes slightly intemperate in the way we express our views on this issue.

As I said when talking about my ten-minute rule Bill, for me the key issue is the advertising of these products, which is irresponsible. It might be argued that people are being given a choice, but people are not making that choice on value-for-money grounds. They are not shopping around. They are not thinking, “What’s the best product for me?” They are instead thinking, “What will get me an answer to my problem as quickly as possible, and who will say yes to me? I don’t want to go to the bank and be told ‘No’ or ‘You can’t have this but you can have something else and do you want to make an appointment to come back next week?’” These people have very immediate financial difficulties, and these products are deliberately targeted at them.

Damian Hinds (East Hampshire) (Con): First, may I apologise for missing some of the earlier speeches?

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I have a great deal of sympathy with much of what the hon. Lady has said, but the fact that these companies have high costs and in particular high marketing costs, and the fact that there is no evidence that consumers are making rational choices based on which is more or less expensive, suggests that taxation is not the answer to the problem. There may well be an answer to the problem, but hiking up taxes is almost certainly not it.

Mrs Chapman: The new clause does not only address taxation. The hon. Gentleman should read it thoroughly, as it talks about other measures too. I do not think there is any one measure alone that will address this problem; there will have to be a package of measures.

There is no real competition in this market, as there are only a few companies in it. On Friday my attention was drawn to a company operating in the north-east called Provident. I was very disturbed to hear that last Christmas Provident representatives were going door to door deliberately targeting single mothers—as members of political parties, we all know that can be done. Its representatives were knocking on doors just before Christmas, saying, “We can offer you £500 and you don’t have to pay it back until after Christmas.” They were saying it could be paid back in a number of easy payments, thus making it seem attractive and ordinary. That is completely exploitative, and it will happen again this year unless the Government do something about it; indeed, it will happen Christmas after Christmas after Christmas. This House should neither accept nor tolerate that.

All Opposition Members are big supporters of credit unions.

Lorely Burt: So are we.

Mrs Chapman: Yes, Members on both sides of the House are, of course. The people behind the credit union movement are hard-working and honourable. I work somewhere where everybody is honourable, but these people really are hard-working and dedicated—many of them are volunteers—and they work in our communities to promote low-cost credit to people who are left out of mainstream credit. However, even with the best will in the world credit unions are not going to be able to compete with Wonga and Uncle Buck and so forth, because they lack the high street and web presence.

Mark Durkan (Foyle) (SDLP) rose

Mrs Chapman: I understand that the experience is different in Northern Ireland, and I shall give way to the hon. Gentleman, whom I suspect will explain that further.

Mark Durkan: The low membership of credit unions in Great Britain has been mentioned. Credit unions in Northern Ireland have a high membership; well over a quarter of the population—in some constituencies the figure is more than 50%—are members of the very well-developed and well-funded credit unions. The credit union movement in Northern Ireland has made it very clear that it expects Parliament to take action against the predatory credit sector. The movement does not expect Parliament just to wave to credit unions; it says, “Tackle the sharks, don’t wave to the dolphins.”

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Mrs Chapman: I am very grateful to my hon. Friend for that intervention, as he put it extremely well. I was aware that credit unions in Northern Ireland were incredibly advanced. I have found that although the fledgling credit unions in my constituency are doing a marvellous job, they are unable to do the very thing that he says is unable to be done in Northern Ireland. That strengthens the argument for accepting this new clause.

Stella Creasy: I wonder whether my hon. Friend would like to comment on the irony that credit unions have a cap on what they can charge, yet these legal loan sharks do not.

Mrs Chapman: That is an excellent point, with which I shall finish my remarks. I am aware that many colleagues would like to contribute and, having heard my hon. Friend’s comprehensive speech, I will allow others to do so.

Justin Tomlinson (North Swindon) (Con): I welcome the opportunity to debate this new clause. I have worked with the hon. Member for Walthamstow (Stella Creasy) on a number of occasions to highlight the need to protect the most vulnerable people in society, and we have been supported by hon. Members from both sides of the House. Let us be clear that a consensus is essential, as has been said by the hon. Member for Scunthorpe (Nic Dakin) and my hon. Friend the Member for Macclesfield (David Rutley). This is an extremely complex and challenging issue, and although we all agree that action must be taken, we need to be careful not to make the situation worse. I will set out a number of reasons why that could happen.

The new clause would require the Government to review how taxation could be used to penalise high-cost credit that is detrimental to consumers and competition. However, the current consumer credit review is examining all the options through which we can hope to secure a measured and effective response. I first wish to highlight the need to use credit reference companies, because it is unacceptable that so many of these loan companies do not even simply check whether the person borrowing the money can actually service the debt. We would all agree that we are not against people borrowing money if that is what they wish to do, but they should have the opportunity to be able to service that debt. Secondly, we need to limit the number of customer extensions and roll-overs, as a number of hon. Members have said. It is unacceptable that people can be trapped into a cycle of increasingly expensive debt. Thirdly, there needs to be a cut-off point, when fees and the interest stop being accumulated. Too often we have seen people borrow a relatively small sum that has built up over many years. Many horror stories have been related in previous debates.

Mr Robert Buckland (South Swindon) (Con): Does my hon. Friend agree that there has been far too much of a rush to litigation by credit companies and that a far better approach would be to seek mediation before pressing the button to go to court? Such an approach would relieve a lot of the burden and pressure on the hard-pressed consumers.

Justin Tomlinson: My hon. Friend makes a very important point, with which I absolutely agree. Help should be provided at the point where we freeze that

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debt, and there should be an examination of the reasons why a consumer was unable to service the debt before that debt gets even further out of control.

Another crucial element is to make sure that those who can pay early are not penalised for doing so. That would mean that if circumstances change to benefit them, they would be able to break away from high-cost lending. A number of hon. Members have mentioned the need for there to be greater access to credit unions, and I know that my hon. Friend the Member for East Hampshire (Damian Hinds) has highlighted the issue on a number of occasions. Interestingly, and aptly, the hon. Member for Darlington (Mrs Chapman) made the point that we should be encouraging those organisations that will lend with the consumer’s interest at heart.

The particular issue I wish to discuss, which was mentioned by my hon. Friend the Member for Chippenham (Duncan Hames), is the need to examine the techniques that are being used. In previous debates, I have directed the majority of my anger at doorstep lenders and their nudge-nudge sales techniques. They build up personal relationships, face to face, in the homes of vulnerable consumers, suggesting ways in which people can borrow money. For example, in the run-up to Christmas the lender will ask people whether they have organised the Christmas presents for their children, the consumer will say that they are not sure whether they can afford them, and the lender then says, “It’s lucky I’m here. Just add another £3 a week and you can get the presents that your children want.” These lenders continuously build up people’s dependency on high-cost lending, so we really have to look at these techniques.

6.15 pm

A number of hon. Members have picked on particular organisations—Wonga has been mentioned because it is always advertising on the television and the tube, as hon. Members will have seen—but we need to be wary of attacking what may not necessarily be so and we have to be careful not to chase cheap headlines. For example, although we often consider just the annual percentage rate, very few people can actually make calculations using the APR. When I tested this on a treasury manager the other day, they got it spectacularly wrong, as did everybody else. Let us suppose that someone needed to borrow £100 to tide them over until pay day. They have a choice between paying an APR of 4,400% plus a £5.50 product fee or, as happens at a typical high-street bank they go overdrawn, paying a flat, easy-to-understand fee of £10 a day plus £2.50 for having used their debit card without the authority to do so. Most people would snatch the hands off the person offering them the flat fee—the £22.50 to borrow that £100 for two days—but the APR of 4,400%, which many hon. Members have mentioned, works out at £1 a day and so that loan would cost £7.50, which is £15 cheaper than opting for the unauthorised overdraft at the bank. I am not defending that 4,400% rate, but we have to compare the like-for-like cost of loans and consider the crucial element, which is that most people cannot understand APR.

That brings me on to my next point, which is that we need transparency so that consumers can examine the clear costs of a loan. Let us have none of these different product fees or annual percentage rates, which people do not understand; when people want to borrow X,

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they need to be told that it will cost Y. That would allow them to shop around and completely understand things. If someone borrows £200 for 20 days at one of the high-street banks, they will be paying an APR of 46,500,000 million. Again, that sounds staggering, and I would not advocate anybody doing that, but we have to compare things on a like-for-like basis. We have to make everything clear.

Stella Creasy: Is the hon. Gentleman saying that it is not acceptable for banks to do what he just described? What does he make of the evidence suggesting that one of the challenges in this market is the fact that a quarter of their customers cannot borrow from banks, so even if they wished to use unauthorised overdrafts, they could not actually do so and the only source of credit available to them are predatory lenders such as Wonga?

Justin Tomlinson: Absolutely, and that highlights my first point about using credit reference checks. These people should not be getting money from high-cost lenders. Many of the more reputable high-cost lenders will not lend to them, but many of them do and prey on these people—that is particularly true of the doorstep lenders. We have to try to ensure that more people have access to the affordable banking arrangements—the credit union arrangements—but we must not fall into the trap of thinking that the banks always get things right because, as in the example I just gave, they can prove a lot more expensive—

Stella Creasy indicated dissent .

Justin Tomlinson: The hon. Lady may shake her head, but my interest lies in ensuring that people get the clearest information and the cheapest possible price. I will not defend any organisation that is going to exploit the most vulnerable people.

Unsurprisingly, the final item on my tick-list is the need for financial education. I chair the all-party group on financial education for young people, and I thank the 224 Members who are now signed up to the group. People do not understand APR and, as I have argued, it needs to be removed and replaced by a transparent approach. In addition, we need consumers to be able to understand the implications of what they are signing up for, its true cost, how to source alternatives and the best way to address the situation if they get into difficulties.

I am conscious of the time so I will conclude. We are all agreed that action is needed—nobody, from either side of the House, disputes that. I welcome the consumer credit review, but we must not fall into the trap of a quick fix to chase political headlines which simply makes matters worse. We need a measured and wide-ranging response that puts the vulnerable consumer first. Let us not chase a fix that makes things a hell of a lot worse for the most vulnerable people.

Jon Ashworth (Leicester South) (Lab): May I commend my hon. Friend the Member for Walthamstow (Stella Creasy) for her tenacity in pursing this issue and say that her speech was a tour de force? Equally, I commend her for getting this issue discussed on Twitter, as this must be the first new clause on a Finance Bill to have generated this much interest on that site.

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I wish to make only a few brief remarks, because a lot of what I wanted to say has been covered by my hon. Friend the Member for Darlington (Mrs Chapman), in particular, and by some Members on the Government Benches. Early on, I want to pick up on one point made by my hon. Friend the Member for Walthamstow in her speech and at business questions last week, which is the suggestion that some funny business is going on and that the Government are deliberately delaying making a decision to help the Deputy Prime Minister at the party conference—[Hon. Members: “Rubbish!] Some hon. Members are shouting from a sedentary position, so I would be grateful if the Financial Secretary, who will, I presume, respond to the debate, could guarantee that the Deputy Prime Minister will not make an announcement on this matter in his conference speech. That would help Opposition Members—[ Interruption. ] I invite the Financial Secretary to make a few remarks on that point in his closing speech.

There is some consensus on this issue on both sides of the House. I was not a Member of Parliament when it was debated in February, although I have read many of the speeches. Many Members, on both sides of the House, take the issue very seriously—and rightly so. Before the general election campaign, the then Leader of the Opposition took it very seriously. When he was rebranding the Conservative party, he did not only hug hoodies and huskies. The party launched a campaign about resisting—I hope this is not unparliamentary language—your “inner tosser”, which encouraged people not to fall into the trap of personal debt that we have discussed. At the time, the current Prime Minister said that—and I paraphrase—although the campaign was provocative, we needed to do something about personal debt. The Opposition agree.

Today I visited a money advice centre in my constituency to talk about some of the issues faced by many of my constituents who are getting themselves into trouble. I was told stories about how Wonga and quickquid.com target many vulnerable people in my constituency. Members might not be aware that my constituency contains some of the most deprived estates in the country and we have had many examples of such companies targeting people such as single mothers, as in the cases mentioned by my hon. Friend the Member for Darlington, when they have no choice but to sign up to such deals. Such people end up in great difficulty.

Another issue mentioned at the centre, although it does not fall within the narrow confines of the new clause, was illegal loan sharking. The problem is that many people who find themselves in deep trouble through legal loan sharking feel that they have no alternative but to turn to illegal loan sharks. I hope we will be able to debate that in future. I was told many tragic stories about people who have fallen foul of illegal loan sharking. Such people might be in work—it is not always a matter of gangs preying on vulnerable out-of-work people on estates. One example involved somebody who took out a loan from an illegal loan shark for £7,000, which soon became £70,000.

Lorely Burt: I agree with the hon. Gentleman about illegal loan sharking, which is a scourge of this country. Does he welcome the fact that despite the cuts the

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Government have made in other areas, we have increased the amount of money we are using to fight illegal loan sharks?

Jon Ashworth: My hon. Friend the Member for Nottingham East (Chris Leslie) tells me that the Government have cut the financial inclusion grant. I always welcome action to tackle illegal loan sharking, so I would be very disappointed if the money going into those funds was cut.

This is an important issue, which particularly affects my constituents. As my hon. Friend the Member for Walthamstow said, it is not just the constituents we would traditionally think of as the most vulnerable in society who are being hurt. Increasingly, the money advice centre I visited today is finding examples of people from lower and more middle income-backgrounds getting themselves into trouble and falling prey to such organisations.

Alison Seabeck (Plymouth, Moor View) (Lab): Does my hon. Friend accept that that income group—some of whom claim housing benefit and will be hit by the housing benefit changes and will have to find a lot of additional money to pay their rent out of their own pockets—could well fall victim to both official and unofficial loan sharks simply to meet their rent?

Jon Ashworth: I know that my hon. Friend has a good track record in raising such issues, particularly those to do with homelessness, and she is right to bring that matter to the attention of the House.

I want to focus on the point made by my hon. Friend the Member for Walthamstow about lower and more middle-income people being hit. Increasingly, such people are turning up at the money advice centres in my constituency in a way that they had not in recent years. That might reflect our economic climate, with inflation running at twice the rate of earnings and with the cost of living, food and utilities putting a great strain on the budgets of many people in my constituency. Those issues came up time and again in my by-election campaign and the Asda income tracker, which my hon. Friend mentioned, shows that families are some £165 a month worse off than they were a few years ago.

The final point raised with me today concerned credit unions. Labour Members have always been huge supporters of credit unions—the co-operative values on which they are based are values that we share—and I concede that Government Members support them, too. If we simply say, however, that credit unions can step up and fill the gap, we are somewhat mistaken. They do not have the capacity to compete with organisations such as wonga.com and quickquid.com. I would welcome it if more resources went into credit unions so that they could compete, but realistically they cannot carry out the door-to-door activity that wonga.com and so on can. Although we are great supporters of credit unions, I do not think they are the answer, although they are part of it.

In conclusion, I would welcome it if the Government could give us some indication of what is happening with the review, if they will not support the new clause. We need some regulatory reform of the sector. People in my constituency, in particular, are being hit. The situation is getting worse and unless the Government take action, I am worried about the future.

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Andrew Percy: I was not sure when I came into the debate whether I was going to speak—[ Interruption. ] Well, I can never resist the temptation to hear the sound of my own voice. I have found this an interesting and fascinating debate with some very good speeches from Members on both sides. Some speeches have been a little political at times and it is best that we brush over that, because the issue should not be political. The hon. Member for Walthamstow (Stella Creasy) is, I know, passionate about this matter and I agreed entirely with a great deal of her speech. She has been in a Twitter conversation with a constituent of mine in Snaith. Very sound people live in Snaith—very sound people, because they re-elected their Conservative councillor with a massively increased majority in May, but we will gloss over that.

The issue has sparked an interest across the whole country. The letters and tweets we are getting from our constituents reflect the fact that a lot of people are interested in this matter. This has been a good debate and the hon. Member for Darlington (Mrs Chapman) made a particularly good speech, I thought, which was very consensual. I look forward to hearing the hon. Member for Makerfield (Yvonne Fovargue). I always listen to her on such matters because of her vast experience. I know that my hon. Friend the Member for North Swindon (Justin Tomlinson) has a huge interest in the subject, as does my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch), who used to work with me at McDonald’s in Hull when I first started to get into debt. Although I have never personally had to borrow from a high-cost credit company, I certainly understand having debts to the tune of tens of thousands of pounds.

In my case, it was credit card debt, and I am not alone in that. It started at university and I went down the line of paying off one credit card by transferring it to another on 0% for a year or a number of months before conveniently forgetting that and maxing out the one that I had just cleared. I now pay about £600 a month to clear all my credit cards, which I have had to roll into a loan since my election. I understand what debt is like and I know how once someone is on the conveyer belt, it is difficult to get off, and that is just with credit card debt. That conveyer belt moves faster for those on the high-cost credit side of things—I guess that is the only difference.

A lot of my constituents come to me with debt issues, which is why, following the lead of my hon. Friend the Member for North Swindon, I am getting the staff in my constituency office trained in the debt management side of things—not so that we can issue particular advice, but so that we can point people towards the most appropriate advice.

6.30 pm

We cannot look at just one side of this debate, such as regulation, education or the behaviour of people in the market; we have to look at them all together. That is why I am genuinely interested in the Government’s response to the consumer credit review. I look forward to hearing what the Minister has to say. Access to advice is one side of the issue, which is why I was delighted to hear about the financial inclusion funding. As the hon. Member for Makerfield will attest, I took part in the debates on that at the time, because it is

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something on which my constituents rely heavily. I am pleased that the financial inclusion funding has been preserved for the year and that we seem to be moving towards an alternative that will maintain face-to-face advice—that has certainly been hinted at, and I hope that that happens—although I look forward to hearing more. Indeed, I am talking to one of my councils in north Lincolnshire about how we can better support citizens advice bureaux, which my neighbour, the hon. Member for Scunthorpe (Nic Dakin), is a huge supporter of.

We have to look at all the issues in this debate together, although I have to say to the hon. Member for Walthamstow that some of her speech got into the politics of the issue. I understand that she feels passionately about it, and she is quite right to criticise the Government if she feels that they have not responded quickly enough. Also, if she feels that anything has been set up for party political reasons, she is right quite to highlight that too, because I would not want to be a part of that—I hope that that is not the agenda in this debate. However, as Government Members have said, we are not talking about a section of the high-cost credit market that suddenly appeared on 7 May last year; we are talking about something that has exploded over the past couple of decades, and which no Government have dealt with properly. Indeed, her Government could be held just as responsible for the current position, so let us move on from the party politics of this debate.

The hon. Lady put her points across passionately, but she is asking Government Members to vote in support of a new clause and against their own party. That is not something that bothers me—I have no desire ever to be a Minister, and I will vote whichever way I think is best —but I would question whether some of those promoting the new clause have the same record on voting against their own side when they feel strongly about an issue. Therefore, please let us not criticise Government Members who perhaps do not support the new clause this evening; what is important is the message that goes out from all parts of the House. As the hon. Member for Scunthorpe said in an intervention, we must ensure that we retain cross-party consensus on the issue.

Education is key to this debate. The all-party group on financial education for young people, which the hon. Member for Walthamstow and my hon. Friend the Member for North Swindon have a part in, is driving this agenda forward. It is my privilege to be chairing the cross-party inquiry—on which the hon. Member for Darlington serves with distinction—into how we can get proper financial education on to the primary and secondary school curricula.

We also need to look at regulation. Let me say to Ministers that, as other Government Members have said, regulation is not something that generally comes naturally to me as a Conservative. I prefer to have as little regulation as possible; however, we are dealing with some of our most vulnerable constituents. Any Member who has had somebody come to their surgery with such problems will know that it is not school teachers or local doctors who turn up; generally, it is vulnerable people from a particular socio-economic group who are not very financially literate—although plenty of educated people are not financially literate either. Indeed, I can almost predict from where in my constituency people with such problems will come, because

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they will have been targeted, because they have not had access to proper advice or, as has been said, because they have not had access to alternative sources of credit.

It is therefore time that we looked at some form of regulation in this area. Indeed, the international experience that the hon. Member for Walthamstow spoke of sounded very interesting. We looked at some examples in a previous debate, and I note the example of Alabama in particular. It has come to something when we are looking to Alabama for examples of regulation, given that the southern US states are not exactly known for their love of regulation. I look forward to the Minister’s response to this debate. I said that I would approach it with an open mind, and I take on board the excellent speech that my hon. Friend the Member for Chatham and Aylesford made about taxation measures. Personally, I cannot see how taxation measures would have a great impact, although I note that sub-paragraph (d) in new clause 11 talks about looking at basically everything, so it will be interesting to see how the Minister responds to that.

Mrs Chapman: I have found myself wondering who the hon. Gentleman disagrees with in this debate.

Andrew Percy: I am feeling the love in the Chamber today, which is a good thing—there must have been something in the water in Goole this morning. However, the serious point is that that hopefully proves that although there are concerns, and although lots of Members who will vote differently from each other this evening have made incredibly passionate speeches, they clearly all want to see the same thing. We might disagree on how to get to there, but the fact that I am agreeing with so many people is perhaps a sign that there is consensus on this issue, which is a good thing.

Stella Creasy: At the risk of increasing the love in the Chamber, does the hon. Gentleman agree that the new clause would put beyond doubt—along with other measures that could be taken to tackle the problems that we all agree exist—tackling the question of regulation and acting on it by the Government? At the moment, we have no guarantee that that will happen in the consumer credit review; rather, we have only vague assertions that they are thinking about it. The review proposed by new clause 11 would guarantee that that would happen, which is why we want action now.

Andrew Percy: Of course that is what we all want to see, but we await the response of the Minister. At one point, some Opposition Members seemed to be saying that the Government were going to announce something at the Liberal Democrat conference, suggesting that it would no doubt be a well attended—I will not be going —and joyous occasion. Indeed, the hon. Member for Walthamstow seemed to suggest that the Government already had a solution that they were about to announce in October, so we all look forward to hearing what they have to say.

To end where I began, this is a hugely important issue for a lot of my constituents, as it is for constituents up and down the country, and it is time that we did something about it. It is appalling that people end up on a conveyor belt and seem unable to get off it. I therefore

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look forward to the Minister’s response, and I genuinely hope that we have some action soon, in the interests of all our constituents.

Yvonne Fovargue: At any one time there are 5 million to 7 million people in this country who are unbanked or who do not have a credit history. In the main, they are the people who turn to high-cost lenders, because they do not have a credit history and they have nowhere else to go. Personal debt is rising, with 46% struggling until pay day, up 8% this year. Again, they are the people turning to the payday lenders.

I take issue with the claim that the rate has grown in the last decade. When I started in the advice field 20 years ago, there was one high-cost lender, Provident, which targeted a specific market. Provident went round the estates, using neighbours and talking to people. The company would go in—here I also take issue with the claim that people use the money on luxuries—and find people who needed to replace their broken cooker. The neighbour would come in, look at the cooker and say, “Oh yes, I can lend you that money.” When the loan was nearly repaid, Provident would come back and say, “Tell you what, your sofa’s looking a bit shabby. It won’t cost you much more to get a sofa,” and people would get trapped in a cycle of debt. However, in one respect, Provident was reasonably easy to deal with, because there was one company with a specific target group. It was possible to go round and talk to individuals, target schools and visit the residents groups that the people concerned attended. It is much more difficult now. The explosion of advertising and the normalisation of the process have made it so much more difficult to control the market and tell people what the dangers are.

I had a constituent come to me in February, as soon as he realised my interest in the subject. He could not quite manage to the end of the month—I think his car tax was due—and he had taken out a payday loan. The company immediately took the payment and the interest out of his bank account the next month. He realised that he could not get to the end of that month either, so he took out another payday loan. That carried on and in the end he had 10 payday loans and all his salary was being taken from his bank account. That was a man who was working. Such companies are supposed to check that people can afford to pay the money back and that they do not have other credit, but that did not happen in this case. For such companies, self-regulation absolutely is not working. That company was not an illegal loan shark: it was a legal company and it did not threaten to break the man’s legs, but it left him in a cycle of stress and depression that he found very hard to get out of.

I am also concerned about the double whammy that these companies are operating, as many of the companies that put people into debt are opening debt-management arms to get people out of debt as well. When the financial inclusion fund was finishing last year, those companies were circling like sharks. I cannot tell hon. Members how many companies contacted me basically gloating and saying, “There will be no, or very limited, free debt advice, so people will have to turn to us and you will have to deal with us now.”

I welcome the Money Advice Service because any advice on budgeting is welcome, but that service does not replace face-to-face debt advice. There is a need for

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that kind of service to be available—and more freely available than it is now. People have what I call behind-the-clock syndrome. They get into debt and cannot face opening the letter about their debt so they put it behind the clock. When they get the next letter, that also goes behind the clock. I cannot tell hon. Members the number of people who used to come into the bureau with a carrier bag whom I would look at and think, “They are in debt”. They would have a carrier bag full of letters that they could not face opening. People are not going to deal with a telephone or online service if they cannot even open a letter. There is a need for free, impartial, face-to-face debt advice and for regulation of debt management companies. Self-regulation is not working. It did not work in America, and when America regulated, those companies started coming over here because they like what they see.

Damian Hinds: Does the hon. Lady agree that while the availability and accessibility of free debt advice are important, visibility is also important? When people do get around to opening letters and starting to seek help, if they search on internet search engines for debt advice, Citizens Advice and the Consumer Credit Counselling Service ought to come at the top of the list even though they cannot afford to compete with debt management companies on pay-per-click rates. Should we not exhort Google and others to make sure that those services are duly highlighted?

Yvonne Fovargue: I think that is an excellent suggestion, but there also have to be appointments available when people need them. It is no use searching for citizens advice bureaux if appointments are not available for six to eight weeks because funding to provide the very specialist advice that is needed has dried up. We have to make sure, first, that people get information about where they can go, and, secondly, that appointments are available.

Regulation of debt management companies is needed. They come at the top of Google and other search engines on the basis that they will be going out of business in two years’ time anyway, so they might as well make as much money as possible by charging up-front fees and charging as much as they can. If they do go bust, as two have recently, it does not really matter to them. I had a client come to me who had been paying £40 a month to a debt management agency for 18 months, at the end of which he owed his creditors more than when he had started. Those companies need to be regulated.

The new clause is one of the range of measures we need. We have to keep this issue high on the agenda because the longer we leave it, the more people will go to high-cost lenders and debt management companies and the more people will get themselves into a spiral of unaffordable debt. We have to act now. It is no use leaving this for another five or six months—how many thousands more will have got themselves into debt in that time?

6.45 pm

Oliver Heald: In the circumstances, I shall not trespass on the House’s good will for too long.

I want to start where the hon. Member for Makerfield (Yvonne Fovargue) did by making the point that if a child of people on low incomes or on benefits needs a

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pair of trainers or some piece of equipment is broken, it is often a disaster and the money is needed right away. That is the background to this issue. The social fund does a good deal.




I think the hon. Member for Makerfield would acknowledge that 400,000 people a year make more than three claims on the social fund, so they are obviously finding it useful. It is important that a credit facility is available, and it is excellent that in Northern Ireland mutuals and credit unions are so well established. We need to do more in this country to develop that idea; otherwise, we will be in the hands of the high-cost operators we have been hearing about.

Yvonne Fovargue: Does the hon. Gentleman agree that many people do not realise that some credit unions offer loans to people who have not saved with them? The growth fund has been very useful in that regard, but many credit unions do not have access to the growth fund with which people have to save before they can get a loan. That makes the situation impossible for many people.

Oliver Heald: The hon. Lady makes an important point, which I imagine will be considered by the consumer credit review. I am a member of a credit union, and I think that all MPs should be because it is a good way of illustrating—

Chris Ruane (Vale of Clwyd) (Lab): I’m in two.

Oliver Heald: I am a member of one, and membership is a good way of trying to convey knowledge about credit unions. I pay tribute to the all-party group on credit unions, chaired by my hon. Friend the Member for East Hampshire (Damian Hinds). We need to do more to increase the amount of credit that is available on reasonable terms.

I am a member of the all-party group on financial education for young people, chaired by my hon. Friend the Member for North Swindon (Justin Tomlinson). The move to teach children the basics of budgeting from quite an early age is long overdue. In households that are chaotic and at the bottom of the economic pile there is very little understanding of basic budgeting, which we must resolve.

Finally, I want to support the point about advice. In the past, I have given free legal advice and dealt with welfare rights. I have experience of the people the hon. Member for Makerfield described, who come to see us carrying bags of documents from companies and unpaid invoices. The people who sit down with them, go through everything carefully and present their case to creditors do a marvellous job. The other day, I went to the Shelter facility in Hatfield, which offers debt advice in that part of Hertfordshire. Someone there had been working on debt advice for 29 years and she had lots of letters on the wall from people saying how grateful they were to her for trying to sort things out for them. We must certainly support debt advice, but we need to do other things in relation to education and credit unions. I would like more regulation in this field and, possibly, a cap.

Sheila Gilmore: Unfortunately, it seems that debates on this subject are beginning to follow a pattern: we all agree that high-cost lending is terrible and a scourge of many of our communities and that we would like something

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to be done about it, but the problem arises in agreeing to act. In February’s Back-Bench debate, the teeth were drawn from the motion proposed by my hon. Friend the Member for Walthamstow (Stella Creasy). The amendment agreed by the majority of Members of the two Government parties removed any impetus for immediate action or any agreement that the regulator should consider doing something. I see exactly the same pattern beginning to emerge. We are told that we all agree that high-cost lending is bad, but when Opposition Members want something to be done about it we are accused of breaching the consensus. In the words of the hon. Member for Brigg and Goole (Andrew Percy), we are the ones who are being political.

Andrew Percy: That is not quite what I said. I said that if we were to be political, we could bandy about the suggestion that all Governments had done nothing. I argued that we should await the Government’s response to the consumer credit review. We can condemn them if they do not do what we want, but until then we should at least try to pretend to be on the same side.

Sheila Gilmore: I am afraid I do not share the hon. Gentleman’s confidence that the review will indeed cover the issues, although something might be pending. The hon. Member for Solihull (Lorely Burt) is no longer in the Chamber, but I was interested to hear her say that “we” would all be happy to see the regulations “we” would be bringing forward. I do not know who “we” were, but it suggests that the Government’s plans are quite well advanced and that the hon. Lady is privy to their thinking, as we are not. At the end of the debate, I hope we shall hear what the regulations are and what will happen.

Warm words are not enough. Some of the organisations involved have tremendous resources behind them, yet there is so little control of their operations. Their services can seem attractive because they “solve” people’s immediate problems. Regrettably, at this stage credit unions cannot compete. Castle credit union in my constituency had to give up its shop-front premises in the main street because it did not have the resources to continue to pay the rent. It has moved into an office in a community building and is still functioning, but it has much less presence than it would have if it were still on the high street, where people would be able see it from the bus and pop in when they were doing their shopping. Now that it is tucked away in the community office, people might not know where it is. The situation is not helped by the fact that the local community newspaper, which used to advertise such facilities, has had to shut up shop owing to cuts in its funding. That will make it even harder for people to find the credit union.

Stephen Williams: I agree that sometimes it might be hard to find a credit union, although the one in my constituency is based on Cheltenham road, a main road. Perhaps credit unions need to go out and find customers; for instance, Bristol credit union had a stall at St Paul’s carnival this weekend.

Sheila Gilmore: Indeed. On Saturday, I was at just such a festival in my constituency. It was a beautiful day—the first sunny Saturday for some time. Volunteers

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from Castle credit union, who help to keep it going, were there for exactly the reasons the hon. Gentleman suggests. However, if, unlike credit unions, high-cost lenders have a high street presence—extremely attractive, brightly lit and hardly missable—it is much easier for people to find them.

Regrettably, only 2 % of people in the UK are members of a credit union. We can all work harder to increase that number, but one thing that would clearly help would be real resources to build the movement. Experience in my city is that real resources, far from being put in, are declining, and there are even fewer members. Despite the efforts of the volunteers who man stalls at local fairs and festivals, credit unions are not providing the competition we want with high-cost lenders. I should dearly like people to use credit unions instead of those institutions.

I understand that this is politics, but when Opposition Members make proposals we meet the accusation that Labour should have done things over the past 13 years, and it is suggested that the fact we did not debars our making proposals and expecting them to be listened to. I am sure that if my hon. Friend the Member for Walthamstow had been a Member during our period in government, she would have been harrying Ministers in exactly the same way as she has harried the Government over the past year. She would not have been afraid to speak.

We should not accept too lightly the suggestion that the previous Government did not look seriously at financial inclusion. The present Government say that they are interested in it too, but they do not put in the means to make it happen. It is not good enough to say they are interested. In my Westminster Hall debate, I referred to our manifesto proposal to oblige banks to provide basic bank accounts. The Minister’s response was, “Oh, we don’t really want that sort of regulation. We want it to be voluntary and we want to work with banks.” That is all too often the Government’s response. They say they want the ends, but they are not prepared to put in the means.

The previous Government did a lot of work on financial inclusion, but no one thing is enough: credit unions will not do it; basic bank accounts will not do it; and taking action against high-cost lenders alone will not do it. We need a range of measures.

Some of the steps that would help have been positively stopped by the Government. The growth fund, which helped to boost credit unions and other community-based financial institutions, has not been renewed or extended.

Damian Hinds: Is the hon. Lady aware of the modernisation fund of up to £73 million?

Sheila Gilmore: I might be wrong, but I understand that the fund is not a substitute for the money that was available through the growth fund. When it was introduced, it was hoped that banks would lend to community-based lending organisations; they have not done so, yet high-cost lenders can get finance to expand their businesses to make them attractive.

Stella Creasy: Does my hon. Friend agree that it is a cause of concern that the Wellcome Trust, which is supposed to advance charitable endeavours, has lent

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£73 million to Wonga so that it can expand its operations in the UK? Such companies can easily access credit; indeed, that sum is the entire amount left from the growth fund for credit unions across the UK.

Sheila Gilmore: I thank my hon. Friend for that helpful intervention. If we are to put the money where our mouth is, it is extremely important that we do not just sit in the House constantly agreeing about how bad something is; we need to take action. On that basis, I urge Members, and perhaps even the Government, to accept the new clause.

Steve Rotheram (Liverpool, Walton) (Lab): I thank the House for its indulgence. I was at a meeting of the Select Committee on Communities and Local Government so I missed the beginning of the debate. I shall try to be as brief as possible, because I am sure that Government Members will have heard the compelling case made by my hon. Friend the Member for Walthamstow (Stella Creasy) and my colleagues and will have been won over by the powerful arguments they articulated.

Those outside the Westminster bubble sometimes question what we as Members of Parliament do in this place. I am sure that there are moments when even we wonder what it is all about and why we parliamentarians put ourselves through the rigorous demands of elected office. I realise just how privileged I am to be here and to represent not only the people of my community, for whom I have the highest regard, but a great city such as Liverpool, and then I have the opportunity, such as the one put forward tonight, to change the lives of ordinary people and realise that my time here is anything but wasted.

7 pm

High-cost credit is exactly the sort of issue that I got involved in politics for in the first place. The issue is totemic, as it represents the sort of fight that I hear politicians talk about all the time in this House. The word “fairness” is bandied around the Chamber like confetti. Even the Prime Minister claims that coalition policies are about fairness. Although I point to the juxtaposition between the reality and the rhetoric, today is an opportunity for Government Members to put their money where their mouth is, because this really is about fairness.

Oliver Heald: There is of course wide acceptance across the House that some regulation is needed in this area, but why should it be about taxation? A Finance Bill obviously provides an opportunity to raise the issue, but does the hon. Gentleman not agree that there is a risk—[ Interruption. ] He should at least let me ask the question before learning the answer from the hon. Member for Walthamstow (Stella Creasy). Does he not agree that there is a risk, through the law of unintended consequences, of high-cost companies simply passing on the costs of higher taxation to the poor people in Liverpool he is worried about?

Steve Rotheram: I always listen to my hon. Friend the Member for Walthamstow, as she is much more of an expert on these matters than I am. I hope that the hon. Gentleman’s intervention is not indicative of the thinking of all Government Members.