12 July 2013 : Column 659

House of Commons

Friday 12 July 2013

The House met at half-past Nine o’clock


[Mr Speaker in the Chair]

Paul Blomfield (Sheffield Central) (Lab): I beg to move, That the House sit in private.

Question put forthwith (Standing Order No. 163).

The House divided:

Ayes 3, Noes 45.

Division No. 58]


9.34 am


Bone, Mr Peter

Davies, Philip

Rees-Mogg, Jacob

Tellers for the Ayes:

Barbara Keeley


Mr Gareth Thomas


Alexander, Heidi

Barker, rh Gregory

Blomfield, Paul

Bradley, Karen

Brown, Lyn

Burden, Richard

Chope, Mr Christopher

Clark, rh Greg

Coffey, Dr Thérèse

Duncan, rh Mr Alan

Durkan, Mark

Fitzpatrick, Jim

Foster, rh Mr Don

Greatrex, Tom

Hammond, Stephen

Harris, Rebecca

Harris, Mr Tom

Heath, Mr David

Hinds, Damian

Hollingbery, George

Hollobone, Mr Philip

Howarth, rh Mr George

Hunt, Tristram

Jamieson, Cathy

Jones, Mr Kevan

Lansley, rh Mr Andrew

McClymont, Gregg

McKechin, Ann

Mordaunt, Penny

Morris, Grahame M.


Murrison, Dr Andrew

Paisley, Ian

Pincher, Christopher

Randall, rh Mr John

Selous, Andrew

Soubry, Anna

Swinson, Jo

Swire, rh Mr Hugo

Timpson, Mr Edward

Turner, Karl

Walker, Mr Robin

Webb, Steve

Williams, Mr Mark

Wright, Mr Iain

Wright, Jeremy

Tellers for the Noes:

Greg Hands


Anne Milton

Question accordingly negatived.

12 July 2013 : Column 660

High Cost Credit Bill

Second Reading

9.48 am

Paul Blomfield (Sheffield Central) (Lab): I beg to move, That the Bill be now read a Second time.

Philip Davies (Shipley) (Con): On a point of order, Mr Speaker. Is it in order for the person who proposes that the House sit in private neither to vote for that nor to be a Teller for that side during a vote?

Mr Speaker: The answer to the hon. Gentleman’s point of order is that nothing disorderly has occurred.

Jacob Rees-Mogg (North East Somerset) (Con): Further to that point of order, Mr Speaker. It was noticeable that the shouts for Aye were very loud and the numbers voting in favour were quite small. Am I right in thinking that the vote ought to go with the voice, as recommended by “Erskine May”?

Mr Speaker: The hon. Gentleman is absolutely correct on that point, which is also not incompatible or inconsistent with my answer to the earlier point of order. The hon. Gentleman’s reference to “shouts” is correct: vote should follow voice. That is the well-established principle enunciated by “Erskine May”, which I exhort colleagues to follow.

Paul Blomfield: I thank Members on both sides of the House for their encouragement and advice. The supporters of the Bill, with four Labour colleagues, five Conservatives and two Liberal Democrats, almost perfectly reflect the composition of the House. The Bill has the support of many other Members, some of whom are here today and many more who cannot be here. That sends two important messages. First, regardless of how far the Bill progresses, Members’ desire to see statutory regulation of payday lending will not go away. Secondly, there is a growing consensus—not only across party, but beyond this place—on what the key components of the regulation should be.

In preparing the Bill, I have drawn on the advice of Citizens Advice, the debt charity StepChange, the Centre for Responsible Credit, Which? and local debt advisers in my constituency. I am grateful for all their support. I have consulted Members from both sides of the House who are involved in the all-party groups on debt and personal finance, on financial education and on credit unions. I hope that the Minister will agree to meet those of us who have been involved in that process as we take it forward. The Bill reflects the common ground of all those groups and offers a consensus on how we should deal in an holistic way with the problems of payday lending. It recognises the important role that the Financial Conduct Authority has to play from April 2014. It deliberately does not seek to tie its hands with over-prescriptive detail, but aims to provide a positive direction of travel to the FCA on the key issues. I hope that that direction of travel is consistent with Government thinking.

I am sure that hon. Members will wish to make many positive points and suggestions, so it is important for the Bill to progress into Committee where they can be considered in more detail. I am sure I speak for all supporters of the Bill when I say that I am open to that debate and the consideration of any amendments that are tabled. Other Members wish to contribute, so I will briefly set the context for the Bill and summarise its main proposals.

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We all know that payday moneylenders are making millions from loans aimed at some of the most vulnerable. They target the poor and make them poorer, pushing them into unaffordable and spiralling debt with exorbitant charges. It is not the intention of the Bill to close down payday lenders, because, sadly, there are few alternatives for many people. However, many of the practices our constituents have experienced are truly appalling. It is those practices that the Bill seeks to stop. We seek to learn from countries where payday lenders have been longer established—in particular the United States, the land of free enterprise—and where effective regulation is the norm.

Philip Davies: The hon. Gentleman talks about exorbitant rates of interest. These loans tend to be of quite small amounts—a few hundred pounds—and for a very short period of time. How much does he think it is reasonable to charge in interest on a loan of £150 over two weeks?

Paul Blomfield: One of the points I made a moment ago was that it would be inappropriate for us to be over-prescriptive. It is right for the FCA to make evidence-based decisions on details of that sort.

Philip Davies: The point remains. If the hon. Gentleman believes that the amounts being charged at the moment are too high, he must have an idea in his own mind of a figure that would not be too high. I just wondered whether he could tell us how much interest on a typical £150 loan over two weeks he thinks would be sufficient to prevent him from introducing the Bill.

Paul Blomfield: I think that most hon. Members would recognise that the annual percentage rate—I will come on to APR later—that Wonga charges, which has just gone up to approximately 5,500%, is entirely inappropriate.

Lyn Brown (West Ham) (Lab): Is it not a fact that loans are rarely £150 over a two-week period? The people accessing loans at high interest rates will have already been turned down elsewhere for credit with lower interest rates. A typical loan for Wonga et al is not £150 for just two weeks; the problem is that they roll over and over.

Paul Blomfield: My hon. Friend makes an important point, and I intend to come on to the issue of rollovers later.

Mr Kevan Jones (North Durham) (Lab): Canada has a Conservative Government at the moment. It is interesting that in this country a £300 loan, whether in store or online, has an APR of 74% and 70%, whereas in Ontario it is capped at 7%.

Paul Blomfield: It is indeed. If we look across the United States and some other European countries where regulation is the norm, we see a variety of approaches to capping interest rates and capping the total cost of credit. That is also an issue to which I will return.

Barbara Keeley (Worsley and Eccles South) (Lab): Is not the key issue affordability? I recently heard from a

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constituent who had to pay back £160 after borrowing £100 for a week. She could not afford the £100, and she certainly could not afford the £160.

Paul Blomfield: My hon. Friend makes an important point. Affordability is indeed at the centre of the Bill, and is an issue to which I will also return.

Ian Paisley (North Antrim) (DUP): The average payday loan in Northern Ireland is about £270 over 14 days, on which I think approximately 55% interest is charged. The people who take out these loans are the most vulnerable in society and cannot afford to repay them. I welcome the Bill. There should be more regulation for these products.

Paul Blomfield: I thank the hon. Gentleman for his contribution. That is precisely the point that the Office of Fair Trading made recently. The suggestion is that the ideal customer for many companies is one who can afford to pay back the interest, but not the original loan. The debt is then rolled over and over. There is limited outlay for the company, which turns into a significant profit.

If I could make some progress, I want to address how the sector has grown in the UK. Back in 2004, it was worth only £100 million. By 2009, that had increased to £900 million and it is now estimated to be more than £2.2 billion. Between 7.4 million and 8.2 million new loans are estimated to have been taken out in 2011-12, causing serious debt problems across the UK. According to the OFT, approximately 2.7 million payday loans were given to people who could not afford to pay back on time, confirming many of the points that have been made. They make up a staggering one third of the total number.

The number of people needing debt support has exploded in the past year. The debt charity StepChange this week reported that during the first six months of 2013 it was contacted by 30,762 people—almost the same number as for the whole of 2012. The increase in average individual debt from payday loans has risen from £400 to £1,665 since 2011.

A series of damning reports in May underlined the urgent need for action. A survey by Citizens Advice found that payday lenders had broken 12 of their own 14 promises to reform the industry. Which? called for regulation to redress what it described as

“the imbalance of power between lenders and borrowers”

in a report that highlighted

“sky high fees and irresponsible lending practices”.

The Public Accounts Committee strongly criticised the OFT for failing to stop lenders targeting vulnerable people, highlighting its failure to hand out a single fine to any of the 72,000 firms in the market, and for only rarely revoking companies’ licences.

Mr Gareth Thomas (Harrow West) (Lab/Co-op): I commend my hon. Friend on how he is introducing the Bill. Does he share my view that a priority for the Government should be the creation of more alternatives to payday lenders, particularly through measures to accelerate the expansion of the credit union sector in the UK?

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Paul Blomfield: I very much agree with my hon. Friend. In my opening remarks, I mentioned that desperate people turned to payday lending because there were no alternatives; the need to develop those alternatives is a pressing issue, and one that I hope the Government will address. I did not think it could be considered within the scope of the Bill, but clearly it is very important. A number of credit unions are beginning to develop more imaginative products, while other financial institutions are also addressing the issue.

Richard Burden (Birmingham, Northfield) (Lab): Does my hon. Friend agree that the Government could encourage the Post Office to get much more involved with credit unions by providing them with counter facilities and so on? Is he also aware that our former right hon. Friend, John Battle, is, at this moment, actively involved in doing just that in Leeds?

Paul Blomfield: My hon. Friend makes an important point, and one that has been discussed previously in the House. The role of post offices could be significant; and, yes, I am aware of John’s work in Leeds, which it might be useful to share more widely with Members; it is a very positive initiative.

Mark Durkan (Foyle) (SDLP): Does the hon. Gentleman recognise the apparent contradiction on the part of some people who support legislation capping credit union interest—currently at 2% per month, although the Government propose to raise it to 3%—yet oppose any cap on the sort of predatory creditors his Bill tries to target?

Paul Blomfield: The hon. Gentleman makes a powerful point, and one that rankles with credit unions as they try to develop their support for people.

The first set of measures in the Bill relates to advertising and information. Citizens Advice recently published results from its payday loan survey on implementation of the sector’s own good practice customer charter. It found that 21% of respondents were not clear about total repayment costs. The Bill would therefore require lenders to display interest payable in cash terms, so that people knew and could compare the cost of borrowing in a consistent way to be determined by the FCA. The Bill would also require that lenders state all fees and charges—crucially including default charges—and the circumstances in which those charges would be invoked on loan applications, so that people were clear about what they were committing to.

Many organisations are tackling the promotion of payday lenders in their own way. I am delighted that on Wednesday the university of Sheffield announced that it was banning payday advertising from its campus, which the National Union of Students has called for nationally. Many football clubs have also taken a strong stand. I congratulate Millwall, Bolton Wanderers and, although all my life my heart has been on the other side of the city, Sheffield Wednesday on the stands that they have taken.

Ian Paisley: Resign!

Paul Blomfield: Some people would call for that.

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My Bill does not go that far, but it would require that all advertising carries a health warning about the nature of these loans and signposts people to free and impartial debt advice, as an option before they proceed.

The OFT highlighted the problem of

“a pattern of advertising that emphasised speed and easy access to cash, at the expense of giving customers balanced information about the cost of lending, the risks if things go wrong and the consequences of non-payment.”

The Bill, therefore, would require that advertising complies with rules set and regulated by the FCA, which would be absolutely in line with Government thinking; the Department for Business, Innovation and Skills has already commissioned a study on advertising of payday loans, and the FCA is keen to look into it. The Bill does not prescribe the rules, but it states that there must be rules. The advertising code for gambling illustrates the sort of approach that might be adopted as well as a possible restriction on the sponsorship of certain activities.

The Advertising Standards Authority recently banned three text messages promoting loans to young people out clubbing. The Bill therefore would require texts and phone calls not to be used to promote high-cost credit. It would also require lenders properly to explain liability to guarantors, where loans asked for them, and the signing of consent forms; credit brokers to provide borrowers with the names and details of lenders; and lenders to disclose details of lead generators to the FCA.

Following on from the point made by my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley), the second set of issues covered by the Bill relate to affordability. Although most lenders claim to assess affordability, the OFT’s recent report said that

“the vast majority of those we inspected were unable to provide us with satisfactory proof that they applied such assessments.”

Citizens Advice found that only 36% of respondents were asked questions to check whether they could afford to pay back the loan. The Bill therefore would require lenders to assess the affordability of loans and introduce an affordability ceiling to be determined by the FCA, either based on credit repayment as a proportion of monthly income or on the total value of loans.

The Bill would also provide for the FCA to set a cap on default charges and the circumstances in which those charges could be applied. It would require lenders to share information with credit reference agencies as an interim measure, pending the establishment of a central real-time database requiring lenders to log details of loans and to seek information to ensure that they do not lend above the affordability ceiling determined by the FCA. It would also provide for a levy on the sector to run such a database, which would be a powerful tool to aid regulation and support evidence-based decision making.

As hon. Members have mentioned, we need to consider a cap on the total cost of credit, which Parliament has empowered the FCA to impose. The Bill does not seek a cap, but it would require the FCA to report on how it intended to exercise that power and to keep the issue under review. As mentioned, central to the concerns of spiralling debt is the issue of loans being rolled over. The OFT found that 28% of loans were rolled over at least once and that they accounted for 50% of lenders’ revenues. Furthermore, 19% of revenue comes from the

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5% of loans rolled over four times or more; roll-overs are profitable business. As I mentioned earlier, the OFT said:

“Our evidence suggests that encouraging roll-overs is a deliberate commercial strategy of some firms”.

Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): Is this roll-over issue not an example of predatory capitalism of the very worst kind?

Paul Blomfield: It is indeed, and the Bill seeks to promote responsible capitalism of a better kind. It would also require the Financial Conduct Authority to determine a limit on roll-overs. We are not specifying at this stage what that limit should be, but looking for a solid, evidence-based decision.

The Bill also includes measures on debt collection, particularly with regard to continuous payment authorities. One case brought to me in Sheffield was of a single jobseeker’s allowance claimant who had obtained while working a payday loan from The Money Shop. Once out of work, he was unable to cover the £250 due from his bank account, but his bank told him that he could not stop the payment being made, which had deeply difficult consequences for him. Another case shared with me was of someone whose account was drained by a payday lender using a CPA, leaving him with no money for rent and facing eviction.

These are common problems, as other Members will be aware, so the Bill requires lenders to give customers three days’ notice of every CPA withdrawal and to ensure that customers are clear on their right to cancel CPAs. The Bill also has measures to ensure that lenders are not allowed to make charges for the administration of CPAs—a practice used by some—and includes a more general provision to allow the FCA to determine the circumstances under which CPAs should not be used, which might include cases where that would lead to essential bills going unpaid, which is an approach adopted in other countries.

As has been said, those who turn to payday lenders are often desperate. Before getting deeper into debt, they would benefit from advice, so the Bill seeks to promote debt support more effectively. It includes a number of triggers that would require lenders to signpost customers to free and impartial debt advice and, where a debt adviser is engaged, to require lenders to freeze charges and put in place an agreed payment plan. Some credit unions—including Birmingham’s Citysave credit union, which has launched a product to help people to pay off their payday loan debts over a 12-month period with a credit union loan—have found some payday lenders to be obstructive. The Bill therefore includes a provision for lenders to accept offers from third parties, specified by the FCA, to settle outstanding debts. The Bill also provides for the FCA to have the power to establish a new levy to support debt advice, about which I know the hon. Member for Worcester (Mr Walker) will speak in more detail. Finally, the Bill requires the FCA to determine enforcement powers to be used in the case of breaches of the Bill.

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I would like to conclude—and to give other Members the opportunity to contribute to the debate—with an example from Sheffield of someone caught by the problems that the Bill aims to tackle.

Mr Christopher Chope (Christchurch) (Con): Before the hon. Gentleman gives his last example, can he say what he thinks the impact of his Bill would be on the number of people seeking payday loans if it were to become law?

Paul Blomfield: As I said at the outset, the Bill does not seek to close down the sector, but I hope it would reduce the number of payday loans by signposting people towards debt advice, thereby opening them up to the kind of support that might lead them in other directions and prevent them from being caught in the spiral of debt. More importantly—others have made this point—by tackling roll-overs and other ways in which the industry makes unreasonable profits from unacceptable practices, the Bill will prevent those who turn to payday loans from being ripped off in the way that, frankly, they are at the moment.

Philip Davies: Following on from that, if the hon. Gentleman’s Bill came into law, what effect does he think it would have on the number of people who borrow from those who employ more “agricultural” means of recovering the money?

Paul Blomfield: That is an important point. It is one I have looked at in relation to the United States, where unregulated markets have been regulated. Where such regulation is introduced in the measured way that the Bill seeks, there is no evidence that people turn to the sort of illegal loan sharks about whom we should be very concerned.

Penny Mordaunt (Portsmouth North) (Con): I congratulate the hon. Gentleman on introducing the Bill and other Members who have worked on the issue, including my hon. Friend the Member for East Hampshire (Damian Hinds). Does the hon. Gentleman agree that often people are in such dire straits from taking out payday loans at massive credit rates that they turn to loan sharks and other disreputable creditors in order to pay back the first loan?

Paul Blomfield: The hon. Lady makes an important point and she is absolutely right.

Let me conclude by giving an example from Sheffield of a single parent, not currently working but supporting three young children. She used various payday loans from different companies to pay household bills and found herself trapped in a spiral of debt. The Money Shop, for example, gave her three roll-overs at £30 a time. It used a CPA to withdraw money needed for essential household bills from her account and she subsequently fell behind with her rent. When she approached the companies, they were very unsympathetic. The Cheque Centre was at one point calling her five to seven times a day. She feels, as many Members of this House do, that payday loan companies prey on the most vulnerable, offering credit to those who have no realistic prospect of paying the money back. This House has a responsibility to ensure that that does not happen. That is why I commend the Bill to the House.

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10.16 am

Damian Hinds (East Hampshire) (Con): It is a great honour and a privilege to follow the hon. Member for Sheffield Central (Paul Blomfield). I congratulate him on bringing the Bill to the Floor of the House and on securing the prized second position in the ballot. Of course, we on the Conservative Benches are delighted that our hon. Friend the Member for Stockton South (James Wharton) got the gold medal position, but the hon. Gentleman has achieved a very worthwhile and useful silver.

The Bill is also timely, as we are in a period of rapid change in high-cost credit. We have had the OFT review—operators are losing their licences for the first time—and the Competition Commission referral. We have the new FCA regime, whereby, for the first time, it can impose a general cap, should it decide to do so.

The Bill is timely and current, but the issues are not new; they have just changed in their shape and manifestation.

My interest in high-cost credit started in 2003, when I did a research project for the Bow Group that looked at various issues affecting inner-city areas, one of which was debt. I ended up doing that research only because nobody else would do the bit on debt, but I discovered that it is a hugely complex, interesting and challenging area. Among the recommendations we made—Members should bear it in mind that this was back in 2003 and we published in 2004—were a complete overhaul of information and disclosure on high-cost credit, including replacing APR as the headline measure with a cash figure for how much people would have to pay back. We advocated “new model” credit unions, with a save-as-you-pay-back product, a slightly eased cap on the APR they could charge and a social ISA, as a way of bringing more capitalisation into the credit union sector from better-off consumers. Some of those things have now been done, by the previous Government and this Government. We have an opportunity to debate some of the others today, thanks to this Bill, and I hope that others may yet fight another day.

That period—2003 to 2004—was about two thirds of the way through what Which? in its recent report calls the credit feast of 1997 to 2007, when borrowing increased from £77 billion to £190 billion. I make that point not as a party political point but to negate a different party political point that is sometimes propagated—that the growth of payday lending, high-cost credit and sub-prime is somehow the result of a Conservative-Liberal Democrat Government. It is not; it is just that the different types of product on the market tend to evolve and change over time.

There is a great deal in the Bill. I suppose it is unlikely that anybody here would agree with every single part of it, but I think that every single part of it is worthy of consideration. I suspect that all or the vast majority of us would agree on some aspects—for example, that loans should be made only to people who can afford to pay them back, and that lending companies should not pretend to solve problems that they cannot solve, especially when they might well be creating newer and greater problems.

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Mr Chope: My hon. Friend puts the case in the context of the lender, but is it not also incumbent on the borrower not to borrow money that he or she cannot repay?

Damian Hinds: Of course it is; no one would deny that—well, perhaps some would, but I certainly would not. There is a big issue about individual responsibility, but this market is a complex one, and it can be difficult for people to find their way around the jungle of credit that is available. People who take these loans are often in very vulnerable circumstances, and I am afraid that the purchase decision—people can blame whoever they like—often ends up being made not on the product that is “right for me”, but the one that the person has just seen on the television or the person who came to the door.

Mr Kevan Jones: Part of this Bill tackles the important issue of advertising, but does the hon. Gentleman agree that what is also needed, especially in schools and for young people, is education about APR and borrowing in general?

Damian Hinds: I agree, and I shall come on to the point, albeit briefly, later.

The second issue on which I think the vast majority of us could agree is that the loan should get paid down within a reasonable period and not be left hanging over people who never get the loan reduced in size—and it gets even bigger for some.

Philip Davies: My hon. Friend said he was concerned about people taking out these loans because they had just seen an advert, and my hon. Friend the Member for Christchurch (Mr Chope) suggested that some people take out loans irresponsibly. Research by the university of Bristol personal finance research centre seems to suggest something different—that there were logical reasons why people took out these loans: convenience, having no or limited access to other sources of credit, and the customer service and reputation of the firms concerned.

Damian Hinds: And there are multiple other reasons why people take out credit products, many of which are just as rational. I shall come on to some of them later in my remarks, but there is ample evidence to show that many people taking out loans—and the same applies when they access a debt management plan—choose something that is inappropriate. Even where comparative, side-by-side, costings are available—to those of us who studied economics and believe in consumer sovereignty and rationality, this is difficult stuff to get our heads round—consumers often take the more expensive option.

Mark Durkan: Is the hon. Gentleman’s answer to the point from his hon. Friend the Member for Shipley (Philip Davies) that the very fact that these products are advertised in a mainstream way as being so convenient is one of the things that gives them the air of reputability, which encourages people to opt for them as a standard and acceptable form of borrowing?

Damian Hinds: I am grateful to the hon. Gentleman. That may well be part of it. There is a range of operators in this market, stretching from the big and well known

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with very large ad spends—we can call them “reputable brands” if we like—through to quite iffy-looking companies at the other end of the scale. As in most markets, there is a range.

All these points—I am grateful to hon. Members of all parties for making them—bring me to the third point on which I think we should all be able to agree. Wherever people are on the political scale—whether they are a Milton Friedmanite free market economist or a socialist—they should agree that people should not have to go to excessive lengths to know that they are not being ripped off. There is, of course, a reasonable amount of due diligence that has to be applied when people make a purchase, take a loan or whatever, but they should not have to run around the block seven times to know that what they are taking out is reasonable value.

Those are the three things on which I hope we can broadly agree, and the debate largely revolves around how we achieve them. It is not always quite as straightforward as it appears. On occasion in this House and elsewhere, relatively simple solutions have been proposed that purport to deal with complex market issues in one big initiative. I suggest that that is rarely an adequate answer, as it is rather more complicated.

There are a number of rules of the road in the credit markets, and they have come into sharper focus for me as I have looked into this subject over the last few years. The first is that there are always unintended consequences—except when there are no consequences at all—of what regulatory authorities try to do. The second is that markets cannot be beaten unless something better is provided. The third is that where demand creates its own supply, supply creates its own demand. Let me explain in a little more detail what I mean in each of those cases.

On the unintended consequences, it is a beguiling and attractive prospect to say, “Let us just cap the amount of interest that lenders can charge on their loan products so that people will pay less and household budgets and benefits will go further.” The problem with a blunt and general APR cap is that companies find new products that slip outside the definition being regulated and new ways of making money that do not count as part of APR. To the extent that this cap, or something like it, is effective, its major impact is market exclusion, which inevitably means the most vulnerable and the poorest customers are those most likely to fall into the hands of illegal loan sharks and the sorts of people whose idea of a late payment penalty is a cigarette burn to the forearm.

When I say that there are sometimes no consequences at all, it can again be beguiling to think that we have done something clever, come up with an initiative, empowered consumers and so forth, but it turns out that no impact whatever was made. It is very easy for disclosures, warnings, signposting and so on to just become part of the wallpaper of life—like the bit at the bottom of the billboard chart that says, “Your home may be at risk if you do not keep up your payments on a mortgage or other loan secured on it.” In the case of this market, hon. Members may recall from the previous Competition Commission inquiry that there was, for example, a lenders-compared website, which was meant to help consumers who might be home credit borrowers to compare the price of home credit providers against

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credit unions and so forth. The problem, of course, is that nobody uses it. The regulatory authorities feel happy because they have provided something, but what they have provided actually does no good at all.

Mr Robin Walker (Worcester) (Con): My hon. Friend is making an excellent speech. Does he agree that part of the problem is the fact that one of the figures or statistics that people often ignore is that for APR? Does he share my concern that, in a poll of students, significant numbers thought that the higher the APR the better, showing how poorly this measure is understood?

Damian Hinds: My hon. Friend raises an important and telling point. It is, as he says, a problem affecting students, but I am afraid that it exists for many older folks as well. It highlights the fact that a cash number might be a more appropriate headline figure on which to explain the costs.

My second rule is that if the market is providing something that people want and it seems to fulfil a need, it cannot be got rid of unless something better is provided. Credit is a fact of modern life. During the year, people have ups and downs in their expenditures patterns—around Christmas, birthdays and back to school, as well as when unexpected things happen such as a car or a relationship breaking down. Credit is one of the means that everybody uses—or almost everybody, whatever their income level—to help smooth out those ups and downs. It can be entirely rational—the point raised by my hon. Friend the Member for Shipley (Philip Davies)—even to take out a payday loan at a 2,000% APR if in so doing someone avoids unauthorised overdraft charges by the bank, which might cost even more. When the market provides something that has a use, it will not be got rid of until something better is provided.

My third point is that although, as I said, the market will provide and supply will follow demand, it is also true that demand will follow supply—on that at least, Galbraith was right. Payday lending in the UK in recent years has not grown because it has suddenly become more difficult to get from one pay day to the next. People have always struggled to get from one to the next and to pay unauthorised overdraft charges to tide them over for a short period. The difference is the availability of payday lending—partly, Members may note, displaced from the United States, from where a number of operators have come as the regulatory environment in the US has become more difficult. That suggests that there is some efficacy in regulatory restrictions.

All of that tells us that individual simple and grand solutions will probably not create the whole answer. We need an integrated approach, and, as the hon. Member for North Durham (Mr Jones) mentioned, we need financial education. That is one of three parts that have to constitute an integrated approach. The others are sensible regulation and disclosure and ensuring that there are alternatives to high-cost credit and to operators that we would rather people did not have to use.

To be fair to the Government, there is quite a strong story to tell on each of those points about action that has been taken and is being taken. Financial education is going to be in the national curriculum, and there will be a strengthening of mathematics in schools. On sensible regulation and disclosure, we have the new regime with

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the Financial Conduct Authority, which has the potential to be tougher and more effective than regimes hitherto. Even at the end of the old regime, we are now seeing a sharper and tougher approach from the Office of Fair Trading.

Finally, on alternatives, I am proud of the Government’s support for the credit union sector. We could say the same of the previous Government’s support, although this Government have gone further and are seeking to help the credit unions—those in Great Britain, I should say for the benefit of the hon. Member for Foyle (Mark Durkan)—be self-sustaining and a healthy sector, just as credit unions in Northern Ireland are, and at economic scale. There is also possibly more that could be done in exhorting the mainstream banks to live up to what they might do to ensure further financial inclusion and affordable credit.

Are the Government doing enough? I think it remains to be seen. To some extent they may be, and the new FCA regime could produce quite a dramatic change over time, with credit unions becoming bigger, offering an improved product range and so on. That will really make a difference, and with the lifting of the cap from 2% to 3% per calendar month, we will start to get into a zone in which short-term loans can take on parts of the payday lending market.

Big issues remain, however, and the hon. Member for Sheffield Central mentioned some of them. At the top of the list, of course, is the massive and visible growth in payday lending. One thing that has really made a difference to the public policy debate is that now that high-cost credit is on the side of buses a lot more people are paying attention to it than when it was only on daytime telly or on the back of tabloid newspapers. There are also issues to do with credit brokers and the Amigo model, which is a new model of credit whereby people get their mates to underwrite their loan, and then it turns out, lo and behold, to the surprise of that mate, that he or she gets stiffed for having to pay the loan later. We must also consider the behaviour of certain debt management companies, marketing practices and so on.

Through it all, we should not forget old-school credit. I have mentioned all the flashy new things that are clearly visible on the radar of public policy makers and commentators, but home credit is an enormous sector that is largely invisible to most of us, because most of the time it is a door-to-door activity on streets and estates, using an agency network and without advertising. The leading operator of home credit claims to have one in 20 UK households as regular weekly customers. It is an enormous business.

I turn to specific aspects of the Bill. I will comment on them in the sequence of the customer journey, starting with advertising. This is tricky for me to say, as I believe in free markets—I am a Conservative MP and was a marketer before I came to the House—but at some point we have to face up to the fact that not only sharp practice, such as dodgy or unrealistic advertising, but the volume of advertising in the credit market makes a difference. The sheer ubiquity of messages about the ease of access to credit and the problems it will solve has an impact.

I am not about to advocate some sort of volume restriction on advertising, but we must have that point in the back of our mind. I understand that the Government

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have commissioned some research on the effect of payday loan advertising on consumers, and that we will hear back on it in the autumn, to which I look forward. Without trying to restrict the total number of ads for credit, I think there are some things that everybody can agree are blatantly bad and should be stopped. One example, to which I think the hon. Gentleman alluded, was the £1,000 night out text that First Payday Loans sent to people. It purported to be from a friend and said, “I’m still out on the town and I just got £850 or £1,000, and you can too.” That is clearly bad practice in advertising.

I saw an advert on Sky News the other day for an instalment loan, not a payday loan. It said, “Quote this voucher code for 20% off”, and then in small letters on the screen, it said “20% off your first repayment.” There are 12 repayments, with 20% off the first one, so it is hardly a bargain. We need better enforcement on advertising, and the new regime can bring that.

More generally, as the OFT has said, there is too much emphasis on the speed and ease of getting credit. The terms of competition are, “We will do it faster than the other lot.” It is about fewer checks, less waiting time and so on.

Penny Mordaunt: Does the hon. Gentleman agree that for an enormous number of people who are going for such loans, it is extremely attractive not to have any face-to-face time? Often, they are intimidated by having conversations with a bank manager and so forth, and some of them are deeply embarrassed about the situation in which they find themselves. Being able to go online and spend 15 minutes getting a loan without any advice or any real time to think about it is an extremely attractive option.

Damian Hinds: My hon. Friend is entirely correct. It is not necessarily even about face-to-face time; even not having to provide a physical signature makes a difference. We cannot logically explain why that is so—it just is. Each hurdle makes people reflect further on what they are doing, and as things become quicker online, that creates an added danger.

Some of the advertising and marketing styles of payday loan companies in particular, such as using cutesy cartoon characters, are to my mind not really appropriate to people possibly getting themselves into financial trouble.

Jacob Rees-Mogg: I am very much enjoying my hon. Friend’s speech. It puzzles me that payday lenders seem to be exempt from the normal rules of “know your client” and money laundering. They prevent any investment house from receiving money, and it seems strange that companies can lend money without being obliged to follow them.

Damian Hinds: As ever, my hon. Friend makes a perceptive point.

I do not think that health warnings on advertising will solve every problem, but I do believe that there is a role for them. If we have health warnings on all sorts of other things now, it is reasonable that we have them on debt advertising.

We must also consider the representation of costs. APR is not a particularly helpful measure in many ways—once it goes past the first 1,000%, people start to think, “What difference does that make?” There is a

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natural argument for saying that there should be a cash cost comparison instead. However, there is no perfect solution. The formula that Which? proposes of pounds per 30 days seems to deal with the immediate issue, which is the growth of payday loans. It does not necessarily help with the comparability of all products, however, and with any cash comparison—the amount-to-pay-back figure—there is still the issue of how to deal with behavioural charges, which are an additional way of making money out of the customer. Companies can in theory charge a relatively low headline payback rate in the knowledge that they will make more money from missed payments and various other behavioural penalties. We may in the end decide that a cash comparison is useful, but we will still need the representative APR figure, and we will also need to have a proper analysis and debate about which behavioural and other charges should be reflected within that.

On agencies and intermediaries, I support the Bill’s provisions on credit brokers, underwriters and guarantors, and the Amigo model, but there is something else we need to be aware of: as the online market develops even further, there is a tendency in every sector—I saw this in my old sector of hotels and travel—for intermediaries to come in, particularly on paid search, and intermediate, and there is a natural inflationary pressure in that process, which in the end only ever gets passed on to the consumers. Whereas the internet is supposed to make things cheaper for consumers, and comparisons easier and markets freer, it actually tends to concentrate power with other people and add other costs, a lot of which end up going to search engine providers.

Affordability and cost limits is another important issue. Two types of limit can be applied. One is a limit on the cost of the loan—on how much companies can charge to anybody. The other is a limit on affordability, or how much credit can be extended to an individual given their circumstances. Both of them are very complex, which is implicitly acknowledged by the fact that the hon. Member for Sheffield Central says in his Bill that the FCA would have to decide exactly how these things work.

There are big arguments against having a cost cap, because of all the unintended consequences that I have mentioned, but if there is to be a cost cap, it ought to reflect the actual cost structure of extending a loan. In principle there are three elements of cost in extending a loan. The first is the initiation cost, including customer acquisition and credit checks. The second is the actual cost of capital. The third is the risk element, which will vary by customer-type.

If we recognise that and want to reflect it in a limit on the amount of interest that can be charged, we should end up having two elements to the cost cap. One of them is to cover the initiation of the loan, and the second is to cover the cost of capital and risk factor. The figure here would be something like a cap of 15% of the capital as a one-off, plus 30% as an annual interest rate. Sub-prime and high-cost credit providers that offer a range of loans seem to follow that sort of formula.

Philip Davies: My hon. Friend talked about assessing affordability and I just wondered whether he had any views about what information should be provided to the

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lender in terms of bank statements, proof of income and so forth. If this was just done on a self-verification basis, people could say anything they wanted to make sure they got the loan.

Damian Hinds: As ever, my hon. Friend tees me up nicely for my next point, which is about affordability. This is different from the issue of an overall cost cap. People need a bank account to get a payday loan, and payday lenders will typically require proof that they have a pay day on which a regular amount of income comes in. The Bill proposes a single real-time database. For myself, I think that is a step too far. This would be a database of every loan that everybody in the country has, and to be effective it would need to cover not only payday loans, but credit card debt, mortgage debt, car debt and all sorts of other debt. There are massive worries in that, relating to privacy, civil liberties, the concentration of data and, of course, what happens when, inevitably at some point, it goes wrong. I do think we need to look at serious reform of the existing credit reference agency system, however. It does not seem to work as it should when people who are overstretched and who have had eight, nine or 10 lines of credit extended to them go to debt advice agencies.

Another issue is making sure the loan actually gets paid down over time. There is a big fashion for restricting roll-over. We need to be careful about that, however, because it deals with the immediate issue we happen to face in 2013. I remind Members that 10 years ago roll-over was something we understood only in the context of the national lottery and 20 years ago we understood it only in the context of “10 in the bed and the little one said”. In terms of loan products, it is a new thing, therefore, and I would rather we instead had a general duty to make sure the loan gets paid down over time. That should apply to instalment credit and revolving credit as well as to payday loans. A product that is advertised as a 30-day loan should, therefore, be paid down fully by 60 or 90 days, but the payback should start before that 60 or 90 day point is reached.

Mr Chope: Will my hon. Friend give way?

Damian Hinds: I had better not, as I am about to conclude.

On debt advice referral, I agree with the hon. Member for Sheffield Central that signposting at points of risk is vital, but there are even simpler things we could do, such as making sure that when people are actively trying to signpost themselves to debt advice, they find it more easily. I am thinking in particular about internet search engines, where keywords can be purchased by commercial providers when we might prefer the search went immediately to not-for-profit organisations.

Finally, I want to talk very briefly about three issues that are not covered by the Bill, but which are closely related to it. I mentioned our not being able to beat something in the market until we come up with something better. The first issue relates to mainstream banks and the fact that part of the reason why payday loans are popular is because of the behavioural charges people incur at mainstream banks and the bounce charges. We need to work on that, and if possible remove the cause at source. There is no such thing as free banking; there is only banking which is paid for by different people in

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different ways at different times. There is cross-subsidy from people with more complex, perhaps even chaotic, banking affairs to people who have simpler banking affairs—or to put it another way, banks make money out of people going overdrawn accidentally and being charged for it.

This is politically difficult, but people ought to cover the real economic cost of their current account. If that were the case, it would pave the way for a different type of bank account—a jam jar account, or budgeting account—which would make it much less likely that people would trip into debt.

Mr Robin Walker: Will my hon. Friend give way?

Damian Hinds: I apologise, but I had better not.

The second issue is alternatives and credit unions. I have already said I strongly support what the Government are doing, and with the 3%, rather than 2%, a month cap there is now the possibility of lending in the short-term market, but we also need to look at the costs credit unions face and make sure that in respect of loan initiation—particularly with credit checks and so on—it is possible for them to operate in that short-term market effectively.

Thirdly, on savings, if everyone had a small cushion of resilience against the car breaking down or the little things in life that go wrong and push us over the edge, there would be less likelihood of credit being needed. [Interruption.] The hon. Member for North Durham (Mr Jones) is shaking his head, and I wonder if he is saying to himself—or to me—that that was a naive thing to say.

Mr Kevan Jones: It is.

Damian Hinds: I am grateful to the hon. Gentleman for that, but it is not a naive thing to say because we end up spending more, not less, by borrowing. I am not saying this is easy, but I am saying it is better to help people to build up that cushion, if at all possible. That is one of the things credit unions do; it is what the credit union movement is founded on.

Mr Jones: Will the hon. Gentleman give way?

Damian Hinds: I am afraid I cannot, because—[Interruption.] Go on then.

Mr Jones: I agree with the hon. Gentleman’s point about credit unions, and I am actually a director of one. But the fact of the matter is that the people we are talking about are on low pay, intermittent pay or zero-hours contracts, which his party is in favour of, so they have no ability to save large sums. The Chancellor’s proposal on delaying the applications for jobseeker’s allowance for seven days will make it even worse for those people.

Damian Hinds: If the hon. Gentleman will forgive me, I must say that he makes political rather than helpful points on this subject. I did not say that these people had the facility to save large amounts of money. As a director of a credit union, he will know that the whole credit union movement is based, initially, on helping people to save. Many credit unions will have a “save as you pay back” process, whereby even where someone borrows from them they will find that at the conclusion of that loan they have a small savings pot,

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which will stand them in better stead for the future. If we move more towards budgeting-type banking—the so-called jam jar bank accounts—there will be the facility for small amounts of money to go, through payroll deduction, into a savings account. That has exactly the same effect, but at a cheaper rate, in terms of smoothing out the ups and downs of cost that people incur through the year.

In conclusion, I wish to congratulate, again, the hon. Member for Sheffield Central, who has done a great service in bringing all these issues to the House. We have a new regime and we have a lot going on from the Government, so we have to see how that beds down, but I am sure that today’s debate will push that forward.

10.51 am

Ann McKechin (Glasgow North) (Lab): It is a great pleasure to rise to support the Bill, and to commend my hon. Friend the Member for Sheffield Central (Paul Blomfield) for securing this Bill for debate and for the measured way in which he has sought cross-party support. I hope that the Government will use the opportunity of the Bill to allow us to take forward the sensible and measured approaches he has proposed.

Let us be in no doubt that we are here today because the regulatory controls in this country are weak and are failing to protect the most vulnerable in our communities. That is why the growth in the number of distressed borrowers is going through the roof. Despite the many warnings that came when the payday lending sector started to expand—the hon. Member for East Hampshire (Damian Hinds) explained this in great depth—we have allowed a wild west gold rush to happen in the high-cost credit sector. It is no wonder that so many major US players have been so keen to invest tens of millions of pounds to achieve a significant market presence here. In 2010, five of the seven biggest payday loan companies in this country were controlled by a US company. Interestingly, some of those companies also operate in Florida, which now has one of the most tightly regulated high-cost credit sectors in the world. It has no roll-overs whatsoever, but according to figures that I have received this week from Veritec Solutions, which provides the regulatory system operated in Florida, there has been a substantial increase, year on year, in the high-cost credit sector in Florida. What it does not have, however, is a substantial proportion of highly distressed borrowers. That is why this Bill is important in putting forward the message about controlling the number of distressed borrowers.

This week, the StepChange Debt Charity reported that more than 30,000 people have contacted it for help with payday loan problems in the first half of this year alone—that is a 54% increase on the figure for the previous six months and is almost the same as the total for the whole of 2012. The charity found that the average payday loan owed in my constituency was more than £1,500. So we are not just talking about £50 here or there; these debts are becoming a marked part of the lives of people in loan distress.

Mr Kevan Jones: Does my hon. Friend also have lenders in her constituency who will lend as little as £10 to certain individuals, at exorbitant rates of interest?

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Ann McKechin: I was interested to hear what the hon. Member for East Hampshire (Damian Hinds) said about the rate of interest, but it actually includes the risk of roll-over loans. So if someone does not take out a roll-over loan, they are actually paying more than the market should be charging them. I am very pleased that we have the inquiry by the Competition Commission, and I hope that that is one of the factors it will examine.

Damian Hinds: I think that the economics work the other way round. Lenders make a lot more money on the roll-over loan than on the previous loan, in general.

Ann McKechin: The hon. Gentleman is right, but the lenders build the risk into the interest rate they charge, so that rate is probably higher than it should be. If we controlled roll-overs, we could also control the amount of APR that the lenders then charge.

The inquiry by the regulator found that companies were making up to 50% of their money from customers who extended or rolled over loans, or who incurred late payment charges. That suggests that this market is out of control. It said that borrowers using payday loans have

“poor credit histories, limited access to other forms of credit and/or a pressing need to borrow”.

The Government need to look at the role of our major banks and, in terms of the unsecured credit market, why so few options are available to many borrowers. This is about extending the market options, through not only credit unions, but our high street banks.

Self-regulation, as in the US previously, has not worked. The Citizens Advice survey since the introduction of the good practice customer charter showed that payday lenders are regularly and systematically breaking their own promises; they are still not making adequate affordability checks or giving proper advice if debtors get into difficulties. We need a real-time recording system, paid for by the industry, not by the Government. Such systems already operate in many other international sectors and there is no reason why these self-same companies could not offer to install such a system in this country without delay.

The watchdog has been criticised. The Public Accounts Committee found that it had been “ineffective” and “timid”, and that it has failed to identify risks of malpractice. I spoke recently to someone who has worked in the US high-cost credit sector and he was astonished at the regulator’s lack of concern over recent years. Frankly, this has been perceived as a peripheral problem affecting “little people” who could not cope with their weekly finances. But in the meantime, huge numbers of people have, since the financial crash, seen their household finances severely squeezed. The growth in food banks and in the number of people who are distressed is increasing week on week. At the end of February,

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outstanding consumer unsecured credit lending in this country stood at £158 billion.

We have failed to invest enough in regulation. We have failed to control this sector properly. This Bill provides us with an opportunity to install proper regulation. I welcome the decision by the Government to move regulation to the Financial Conduct Authority, but that needs to happen sooner and it needs proper direction from Ministers. I am concerned that agencies such as Money Advice Service are still wasting time and money on useless adverts, one of which I watched last night, about mortgage advice—that sector is highly regulated and there is no sign of abuse in it—yet they are not actually tackling vulnerability. The Government cannot abdicate responsibility to a quango; they need to make it clear where those quangos’ priorities lie and that vulnerability has to be central to them.

I hope that the Government will take the opportunity to participate actively in the Bill to make sure that we can start to crack the problem, which is affecting every community in this country.

10.58 am

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson): I very much thank the hon. Member for Sheffield Central (Paul Blomfield) for introducing his Bill and giving the House the opportunity to discuss this matter. We have heard some excellent speeches from hon. Members on both sides of the House, and it is clear that this important issue affects people in every one of our constituencies. Although it is true that some people can take out a payday loan and have no problem with it, finding it a useful product, it is also true that many others have a very different experience indeed. We have heard some of the case studies; we heard about the experiences of individuals and the misery they have found themselves in as a result of a spiral of debt, much of which is not always helped by the payday loans and the behaviour of those in the industry.

Mr Thomas: Can the Minister be clear with the House at the outset about whether she intends to encourage the Friday wolves on her Back Benches to talk out the Bill or whether she will support it and allow it to go to Committee?

Jo Swinson: I can certainly let the hon. Gentleman know that my intention is to make a speech of a reasonable length, and I am happy to take interventions and ensure that the House has the opportunity to question the Minister on these issues. I have to say that Friday is not my favourite day to be in the House because of some of the behaviour that is often on display.

I shall certainly address the points raised by the hon. Member for Sheffield Central. I appreciate the work that he has—

Proceedings interrupted (Standing Order No. 11(4)).

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Tobacco Packaging

11 am

Ms Diane Abbott (Hackney North and Stoke Newington) (Lab) (Urgent Question): To ask the Secretary of State for Health if he will make a statement on the Government’s response to the consultation on standardised packaging of tobacco products.

The Parliamentary Under-Secretary of State for Health (Anna Soubry): The Government’s policy remains unchanged. The Government have today published a summary report on the consultation on the standardised packaging of tobacco products. The consultation was undertaken last year between April and August with the agreement of the devolved Administrations on a UK-wide basis. The summary report is available in the Library.

The standardised packaging of tobacco refers to measures that may be taken to restrict or end the use of logos, colours, brand images or promotional information on packaging. Any brand or product names would be displayed in a standard colour and typeface. The consultation was intended to explore views on whether standardised tobacco packaging would reduce the appeal of tobacco products to consumers, increase the effectiveness of health warnings on the packaging of tobacco products, reduce the ability of tobacco packaging to mislead consumers about the harmful effects of smoking and have a positive effect on smoking-related attitude, beliefs, intentions and behaviours, particularly among children and young people. To inform responses to the consultation and subsequent policy making, the Department commissioned a systematic review of evidence on standardised packaging. I am grateful to the academics who undertook the review at the university of Stirling, university of Nottingham and the Institute of Education. It is being published alongside the consultation document.

More than 668,000 responses to the consultation were received and the views expressed were highly polarised. Strong views were put forward on both sides of the debate and a range of organisations generated campaigns and petitions. Of those who provided detailed feedback, some 53% were in favour of standardised packaging while 43% thought the Government should do nothing about tobacco packaging. Having carefully considered those differing views, the Government have decided to wait until the emerging impact of the decision in Australia can be measured before we make a final decision.

Only one country, Australia, has adopted the policy, which it introduced on 1 December last year. New Zealand and the Republic of Ireland have announced that they intend to follow suit. We intend to wait, so we can benefit from the experience of countries such as Australia that have introduced standardised packaging. In the meantime, I want to promote wider public debate about whether we should introduce standardised packaging in this country, including in this House as well as in the media.

Ms Abbott: Mr Speaker, you would have to have a heart of stone not to feel sorry for the hon. Lady, who has been forced to be the face of this humiliating policy U-turn. Once again, the Government have tried to slip out an important policy statement by means of a written

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statement on a Friday, hoping to avoid parliamentary scrutiny. Once again, the Government have completely lost their way on public health and caved into big business. Today, the health of the nation is being sacrificed to the interests of big tobacco.

The Minister has conceded that the Government’s systematic review found that standard packaging would make smoking less attractive to young people. The Minister will have read the letter signed by 160 specialist consultants and professors calling on the Government not to enact this U-turn. The Minister might have heard the former Health Secretary, the right hon. Member for South Cambridgeshire (Mr Lansley), say:

“The evidence is clear that packaging helps to recruit smokers, so it makes sense…having less attractive packaging. It’s wrong that children are being attracted to smoke by glitzy designs on packets…children should be protected from the start.”

The Minister might even remember what she had to say—that she had been “personally persuaded” of the case for standardised plain packaging. The Opposition have to ask what happened. We suspect that Lynton Crosby happened.

Every single medical stakeholder, every campaigner on tobacco harm and every member of the public who is concerned about the fact that half of all lifetime smokers will die prematurely from their habit and that hundreds of children start smoking every day will be appalled at this decision. It bears no relationship to the evidence and people will die. Will the Minister tell the House whose decision it was to slip out the announcement on a sitting day by means of a written statement? Who was involved in making the decision and can she confirm that Lynton Crosby had no involvement whatsoever in today’s decision?

There can be no greater responsibility on Government than the heath of the nation. Every single Health Minister has declared their personal support for standard plain packaging and the Minister should be ashamed to have been dragged to the House today to set out this disgraceful U-turn.

Anna Soubry: May I apologise, Mr Speaker, for the fact that apparently I have been speaking far too quietly for perhaps the first time in my life? The hon. Lady clearly did not hear what I said, and I will repeat it. We have not made a decision. We have decided to wait, quite properly, to see the evidence as it emerges from Australia. I make it very clear that there is no change in the policy of this Government. Forgive me, Mr Speaker, but the Order Paper is quite clear—I see it before me—and states that there will be the publication in the Library today of a written statement on the matter of standardised packaging. I just heard a whole load of nonsense going up in smoke.

Sir Peter Bottomley (Worthing West) (Con): When I was responsible for reducing drink-driving, I was told that we had to increase the penalties, lower the limit and increase the policing. Drink-driving deaths have come down by three quarters in the past 30 years. The reduction of smoking among men from 82% to about 20% mainly happened before we started throwing the law at everything. People smoke because they take it up as teenagers, and we say they are too young to smoke. We ought to say that only children take it up and to make it as unlikely as people picking their nose in public.

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Anna Soubry: I am very grateful for those comments. My hon. Friend is quite right that prevalence is now at about 20%, which is better than in many other countries. There is a very good debate to be had about whether we should take legislative action or change social attitudes. That is why I am so proud of our “Stoptober” campaign and the fact that we have had up to half a million hits on our website. Half a million quitting packs have been given out. It is a subtle combination of many factors. If only there were one silver bullet—but unfortunately there is not.

Kate Green (Stretford and Urmston) (Lab): When the Minister publishes the analysis of the Australian experience, will she also publish an evidenced analysis of the number of avoidable deaths and illnesses that have resulted from the delay?

Anna Soubry: Well, I could say that the hon. Lady’s party, when it was in government, had 13 years to introduce such legislation. Indeed, I am more than happy to say that. If it was so simple to introduce standardised packaging, why did Labour not do it? It is not as simple as they now try to make out. Most importantly, I believe, Mr Speaker—and I do speak as a lawyer—you always want good legislation that is evidence-based. That is why I am more than content to support a delay, while we wait to see the evidence as it emerges from Australia.

Philip Davies (Shipley) (Con): I congratulate the Government on this decision. The Minister will recall that the last time I raised this subject in the House, she told me that I would see the light, and I am delighted that she and the Government are the ones who have seen the light on this issue. She cherry-picked some numbers of people in favour of and against standardised packaging from the consultation. Could she tell us the figures from the full 688,000 responses? How many of those were in favour and how many against?

Anna Soubry: Forgive me; I do not have that information at my fingertips. I am more than happy to supply it to my hon. Friend by way of a letter, or any other mechanism.

The position I have set out is what we now need, and if there is a criticism that I would make, it is that we went to consultation first. All good legislation needs a good, healthy debate, followed by, perhaps, wider consultation. We now need to have that debate, and I am very happy to lead it.

Chris Williamson (Derby North) (Lab): Does this not represent a shameful capitulation to the merchants of death who want to recruit more children to smoke, who will go to an early grave as a consequence? Can the Minister therefore confirm to the House whether or not Lynton Crosby has had any conversations at all with any Health Minister on this issue?

Anna Soubry: I can assure the hon. Gentleman that Mr Crosby has not had any conversation with any Health Minister on this issue. This really is a complete red herring. I can also inform him that I am very proud of the fact that we have banned cigarette vending machines, which will mean that people under the age of 18 in particular no longer have access to cigarettes by virtue of that site of sale, and I am also pleased that by 2015,

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we shall be ensuring that the ban on displays of cigarettes, which are currently banned in supermarkets without the provision of shutters, will be extended to smaller shops.

Mr Mark Williams (Ceredigion) (LD): One hundred and fifty thousand youngsters are estimated to have taken up smoking since the end of the Government’s consultation, so the time scale is important. Can the Minister reiterate her assurance that this is not being kicked into the long grass, albeit in the outback, as we fear it may well be?

Anna Soubry: As I have explained, there has been no change of policy at all. What we have decided to do, based on the consultation, but most importantly based on what the Australian Government have done, is to look at that evidence as it emerges. I have spoken to the Australian high commissioner—[Hon. Members: “Oh!”] Hon. Members on the one hand claim that this is serious—

Mr Speaker: Order. Let us try to lower the decibel level. Questions should be heard with courtesy, which, to be fair, I think they have been, and the answers must be heard with courtesy.

Anna Soubry: I think this is important. I also spoke with one of the leading experts who have been involved in the legislation in Australia, and I was quite surprised that even after about three or four months, they could not give me a picture of any emerging evidence. That is why we need this time. I believe all good legislation should be based on firm, good strong evidence.

Andrew Selous (South West Bedfordshire) (Con): I am all for evidence-based policy making, not least from Australia—I declare an interest in being half Australian myself—but the Minister will be aware that my step-sister died of lung cancer at the age of 49, leaving four children. The Minister was kind enough to meet her late husband, whose children have set up the Deborah Hutton campaign to do work, particularly with young people, to prevent them from taking up smoking through innovative use of film and suchlike. What are the Government doing to prevent young people—particularly girls, whose lungs are more severely damaged by smoking—from taking up smoking?

Anna Soubry: I am grateful to my hon. Friend, and it was a great honour to meet members of his family. My own father died, after a lifetime as a heavy smoker, from lung cancer, so we are all well aware of the health risks. My hon. Friend makes the good point about what we are doing specifically to stop children from taking up the habit. I have explained about vending machines. Of course, there is also an EU directive; although it may not find a great deal of favour with some Members on my side of the House, it is a very good directive. Work began on it only a few weeks ago, which will mean, for example, that we will not—[Interruption.] The hon. Member for Streatham (Mr Umunna) is chuntering, Mr Speaker, and it is not always very helpful, as I know.

Mr Speaker: Order. So the hon. Lady knows. Was she perchance speaking as a practitioner?

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Anna Soubry: If I were in court, I think I would have to plead guilty to that one, Mr Speaker. In all seriousness—it is a very serious point—one of the things in the EU directive that we specifically looked at was the percentage of the package that should contain health warnings. It is now going up to 65%. There will be no flavourings. Again, this is very important in tobacco products. All this is designed for the next generation.

It is really important to add this: standardised packaging was about making cigarette smoking unattractive to young people. It is the next generation; that is the fundamental aim. That is why it is really important, even for those who use that aim to argue in favour of standardised packaging, that we find out what the evidence is in Australia, which is doing it. That is why my hon. Friend is right to say that good, evidence-based legislation is always the best.

Barbara Keeley (Worsley and Eccles South) (Lab): I am proud that the Labour Government in 2006 gave a free vote on the legislation for smoke-free workplaces. That was an important step forward. Perhaps the Minister should be thinking in those terms now, because today’s decision to take no action will really disappoint the 190 health organisations, including the royal medical colleges and the World Health Organisation, that have supported the move to standardise packaging on tobacco products. Will they not now be drawing the conclusion that the Government, as my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott) has said, have given in to vested interests and entirely lost their way on public health?

Anna Soubry: I do not give in to pressure from anybody, and neither does anybody else in my Department or indeed in my Government. We have taken a decision to wait for the emerging evidence from Australia, and that is the right thing to do.

Jacob Rees-Mogg (North East Somerset) (Con): May I welcome the wise statement made by my hon. Friend today, and remind her that it is often the case that parties in opposition are all in favour of freedom, and when they get into government they are suddenly in favour of the nanny state?

Stephen Pound (Ealing North) (Lab): You had a nanny.

Jacob Rees-Mogg: I did indeed; I was very fortunate. [Laughter.] It is a pity some Opposition Members did not, but never mind.

When liberties are removed, it should always be done, as my hon. Friend says, on the basis of evidence, because freedom is very precious, and the state does not have the right to interfere willy-nilly.

Anna Soubry: I agree that the state does not have a right to interfere willy-nilly, but of course standardised packaging does not prevent anybody from buying cigarettes or inhibit their right to smoke cigarettes if that is their choice, so with respect to my hon. Friend, this is not a nanny state argument at all. The packaging would be affected, but people would remain free, as ever, to buy cigarettes and to smoke them.

Ian Paisley (North Antrim) (DUP): I, too, congratulate the Government on their courageous and brave decision to do the right thing, and I would encourage the Minister

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to keep on changing in this matter. She has protected 1,000 jobs directly in my constituency today as a result of this, and for that I am truly grateful. But may I also say that with clarion certainty today, we now have a statement from the Government that policy in this area will be based on evidence, not emotion. That is incredibly important, in order that we can get to sensible decisions. On that basis, turning to the tobacco directive, will the Minister now agree for her officials to meet me and industry representatives who employ people in my constituency, given that the Minister’s Department has already met with Ms Linda McAvan, the MEP and reporter, on the tobacco directive, because it is only fair that we have proper, full, evidence-based debate on this matter?

Anna Soubry: The hon. Gentleman knows that he and I do not agree on this matter. Of course, we have not made a decision; that is the whole point. We are waiting to see the evidence as it emerges from Australia before we make a decision. I am more than happy to meet him again, as I have done in the past, but I can tell him: I am not going to meet those whose business is to trade and to manufacture tobacco. It is bad; it is horrible stuff. It kills people. It does great damage to people’s health.

Mr Christopher Chope (Christchurch) (Con): I draw attention to my entry in the Register of Members’ Financial Interests.

I congratulate my hon. Friend on her indecision. I also draw to her attention the fact that there does not seem to be any evidence that the sale and availability of illegal drugs in plain packages has reduced their attractiveness to young people.

Anna Soubry: I could speak for a very long time about illegal drugs and how we make them less attractive to young people. We know, for sure, that we need a subtle mixture of different measures that persuade young people not to take substances that are harmful to them. I am more than happy to have that conversation with my hon. Friend.

Valerie Vaz (Walsall South) (Lab): Apart from vending machines, what public health initiatives is the Minister going to undertake immediately to stop 570 children a day taking up smoking?

Anna Soubry: We have a number of measures. For example, we have some of the toughest tax and duty measures in relation to tobacco. The “Stoptober” campaign was phenomenally successful last year. We have a TV campaign that is encouraging people not to smoke in cars, for example, as well as our other continuing work. With public health being devolved back to where it always should have been—to local authorities—a number of authorities, notably up in north-east England, have taken grave measures to tackle smoking by educating young people, in particular. This is all good work that will continue through Public Health England.

Penny Mordaunt (Portsmouth North) (Con): I can see the merits of standardised packaging. Companies have invested heavily in equipment to produce complex packet designs in order to make counterfeiting harder. Does the Minister agree that if standardised packaging

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is adopted, whatever the future designs are, the packaging should still be sufficiently complex and difficult to forge? These are just the sort of issues that she and her Department must now look at in depth.

Anna Soubry: Absolutely. One of the problems in this debate is that unfortunately it has been called plain packaging. It is far from plain. As, in effect, the Government would be in control of what goes on to the cigarette packet, there is provision to make it as complicated as possible, with a variety of colours, watermarks, holograms and so on. Far from being a counterfeiter’s dream, it would be a counterfeiter’s nightmare.

Ann McKechin (Glasgow North) (Lab): The Minister said that this is a joint consultation with the devolved authorities. Can she confirm whether Scottish Government Ministers were happy to hit the pause button for an undefined time period?

Anna Soubry: I have been very pleased to have a number of discussions with colleagues north of the border and in Wales. It is a pleasure, as always, to continue to work with them.

Mr Peter Bone (Wellingborough) (Con): I draw the House’s attention to an interest in the register.

I congratulate the courageous Minister on making this decision. She has led from the front and done completely the right thing in having an evidence-based decision. The shadow Minister’s attack on her was completely unfounded. This Minister would never do something against her principles; if she thought it was wrong, she would resign. Is not this exactly the way Government should be: evidence-based rather than rushing through things?

Anna Soubry: I agree.

Mr Kevan Jones (North Durham) (Lab): It is a first for this Government to determine policy by waiting to see what the Australians do. What time period will there be for the consultation? Has the Minister’s position on this issue, and that of her colleague the Under-Secretary of State for Health, the hon. Member for Central Suffolk and North Ipswich (Dr Poulter), changed?

Anna Soubry: I have absolutely no problem whatsoever with waiting to see what happens with the introduction of the legislation in Australia. The hon. Gentleman knows that the aim of standardised packaging is to dissuade young people from taking it up.

Mr Jones: How long?

Anna Soubry: I am answering the hon. Gentleman’s first question first, after which I will move on to the next one. That is the aim of the introduction of standardised packaging. If a good experiment is up and running that will produce evidence, what could be a more sensible thing for Government to do? As to the length of time, I cannot answer that question, because we have to wait and see the evidence as it emerges. I thought that we might see some sort of change quite quickly in Australia,

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but we have not seen it yet; I am surprised about that. I am afraid it is a case of “How long is a piece of string?” We have to wait and see how the evidence emerges.

Richard Burden (Birmingham, Northfield) (Lab): The Government’s own review found a solid case for standardised packaging, and the Minister says that she is personally persuaded of that case. The Government’s consultation finished not far short of a year ago, and now she says that their position has not changed. Does that mean that their position was always just to wait and see whether anybody else did it before making a decision? If not, what on earth was the point of the consultation and the statements she has made up until today?

Anna Soubry: I appreciate that the hon. Gentleman may have a problem with this, but we have had, and continue to have, an open mind. I have no difficulty with that. We had a consultation that closed in August last year. The Australians passed their legislation and it came into effect in December last year. It is absolutely right and reasonable to see the evidence as it emerges from Australia before making a final decision. That strikes me as responsible, grown-up government.

Karl Turner (Kingston upon Hull East) (Lab): When did the Minister last speak to Lynton Crosby?

Anna Soubry: I think it would have been in 2004.

Mark Durkan (Foyle) (SDLP): Like other Members, I regret that the Government have flinched on this. However, I welcome the fact that the Minister still clearly refutes the fallacy that standardised graphic packaging with markers would in any way aid smuggling or counterfeiters. Will the pause mode that the Government have now moved into still allow them to work with their Irish counterparts, perhaps moving on a synchronised basis in relation to these measures to make sure that this move happens throughout these islands?

Anna Soubry: I am very grateful for those comments. I know that the Republic’s Minister for Health is a firm advocate of standardised packaging. In fact, I think that if he could he would go even further and make tobacco illegal. I hope that he will not mind me saying that in public, but I believe it is his view. It is an absolute pleasure to work with him. We learn from each other. At the various European Union Health Ministers’ meetings we exchange ideas and experiences. That is why—I keep saying it, but it is absolutely right—we must wait and see the evidence as it emerges from Australia.

Ian Paisley (North Antrim) (DUP): On a point of order, Mr Speaker. How can I correct what I consider to be misleading information? How can it be the case that the Government have not met representatives of the tobacco industry when I have accompanied them to meet the Government every year since I have been a Member of Parliament and the previous Member of Parliament for North Antrim has accompanied them to meet the Government for the past 30 years? Can that be corrected in some way, because I believe that it was misleading the House to assert that there would be no such meeting?

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Mr Speaker: I am grateful to the hon. Gentleman for his point of order. My understanding was that the Minister was asked whether she would meet representatives of the tobacco industry and she indicated that she did not intend to do so. I do not think that she was making any wider claim about what had happened with other Ministers or on previous occasions; she was simply signalling that it was not her intention to meet them. If the Minister wants to speak, she is welcome to do so.

Anna Soubry: I will write to the hon. Gentleman.

Mr Speaker: I think the position is now clear; the Minister has kindly committed to write to the hon. Gentleman.

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High Cost Credit Bill

Proceedings resumed.

11.28 am

Jo Swinson: It is delightful to be able to return to the issue of high-cost credit and payday lending after that short interlude for the urgent question on tobacco packaging.

Before we were interrupted, I was saying that I really appreciate the particularly constructive way in which the hon. Member for Sheffield Central has brought forward this Bill, working with not only the wide range of campaigners outside this House but MPs across the House, including me. I am delighted to accept his request to have further meetings with him and campaign groups to continue to discuss the issue and how we solve the problems that he raises. I would also be happy to extend an invitation for him to meet the chief executive of the Financial Conduct Authority, which will obviously play a crucial role in the industry as it moves to become the regulator. I am sure that the hon. Gentleman would find that useful, as would the FCA.

It is important to say from the outset that the hon. Gentleman is spot on about the problems in the industry and I agree with him on roll-overs and affordability assessments. We know from the evidence that my Department has commissioned, the Bristol report and ongoing Citizens Advice surveys that all those issues are causing difficulty. I think there is a huge amount of agreement on the issues we are trying to tackle, but we disagree slightly on the solutions and on whether legislation is necessary at this point or whether the Government’s tough action, which was announced in March and has been taken up by the FCA since April, is a better way of tackling the problems. I believe the latter to be the case and the hon. Gentleman disagrees, but it is important to recognise that there is a huge amount of agreement on what the problems are and that they need to be tackled.

Mr Thomas: Will the Minister confirm whether the Government intend to block this Bill and prevent it from going to Committee?

Jo Swinson: I will confirm that we do not believe that this Bill is the best way to tackle the significant problems in the industry. Obviously, it is up to the House to decide, as is always the case with such matters, whether the Bill should go into Committee, but I and my Government colleagues will not support it if it goes to a vote.

Mark Durkan: A few moments ago another Minister, the Under-Secretary of State for Health, the hon. Member for Broxtowe (Anna Soubry), said that policy should be made on the basis of evidence from elsewhere. There is clear evidence from many other jurisdictions—not least at least 13 states in the United States of America—that competent legislation and regulation exactly such as those proposed by this Bill can be effective and telling. Why are the Government rejecting moving on the basis of evidence and examples from elsewhere?

Jo Swinson: We absolutely are moving ahead on the basis of evidence. We have legislated on this issue. We are transferring the issue of consumer credit to a

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new regulator. It is not as if there is no legislation. We agree that tough regulation is needed to deal with the significant problems in this market, and that regulation is happening. I have confidence in it and in what has happened already, which I will set out. This is about whether further legislation is needed at this juncture and I think that that is the only issue about which there is slight disagreement.

Richard Burden rose

Barbara Keeley rose—

Jo Swinson: I will give way to the hon. Member for Birmingham, Northfield (Richard Burden) and then to the hon. Member for Worsley and Eccles South (Barbara Keeley), and then I will make some progress.

Richard Burden: I am grateful to the Minister for giving way. She has said that the objectives are shared throughout the House but that there is slight disagreement on some aspects. If the disagreement is slight, would it not make more sense to let the Bill have its Second Reading and go into Committee, and then any amendments that she might want to table could be debated? What is wrong with that?

Jo Swinson: The disagreement may be slight, but it is on the basic principle of whether the FCA is best placed to regulate these matters or whether the Government should mandate it to do so through legislation. That is a significant difference in principle.

Mark Durkan: Will the Minister give way?

Jo Swinson: I said that I would give way to the hon. Member for Worsley and Eccles South and then make some progress, but I will be happy to take further interventions later.

Barbara Keeley: I thank the Minister for giving way; she is being generous with her time. As somebody who had a private Member’s Bill that was blocked last year by the guys on the Government back row, I have to say that this is unfortunate. My Bill was a valuable Bill which would have really helped carers and the identification of carers. This is also a valuable Bill which would help people who are in debt. It would be very helpful if the Minister would support its going into Committee, because that could help build a really good public campaign, which is what I intended to happen with my private Member’s Bill. It would be an absolute waste if she let her colleagues on the Government back row talk this Bill out.

Jo Swinson: I share the hon. Lady’s frustrations, having supported private Members’ Bills on Fridays in the past, such as the Climate Change and Sustainable Energy Bill proposed by the hon. Member for Edinburgh North and Leith (Mark Lazarowicz). Ultimately, it got through and was enacted, but getting there was a painful process.

I hope that I will be able to reassure the House on the issue of protecting vulnerable people and taking action on their behalf. Significant action is already being taken.

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Today’s debate is helpful in raising the issue’s profile, so I thank the hon. Member for Sheffield Central for promoting the Bill, but there is a sticking point with regard to the independence of the FCA and its role as a regulator with real teeth that is able to set its own rules.

Penny Mordaunt: Will the Minister give way on that point?

Jo Swinson: I want to make some progress, but I will mention the FCA later, so I will take more interventions shortly.

Across Government we share the concerns that have been voiced about payday lending. There is widespread poor practice within the industry and harm to vulnerable consumers. Since the Bristol report on high-cost credit and the Office of Fair Trading’s review of payday lending compliance were published in March, there have, unfortunately, been no signs of the problems going away, as backed up by data from Citizens Advice and StepChange.

The hon. Member for Sheffield Central said that his preference would not be to ban payday loans. It is important to be clear that there is a place for high-cost short-term lending and that emergency cash or managing a short-term cash-flow problem can be useful. However, it is not right for many consumers, many of whom get lured into taking out loans that they cannot afford to repay and that they should not be given in the first place. Too many people are not getting a fair deal, which is why action is needed and why it is indeed being taken.

The Government are making this a high priority and I am personally very keen to make progress in changing the industry. It is important to recognise, however, that the solutions are not easy or simple. This is a complex market. A wide range of factors drive consumer behaviour toward financial management and debt. I will set out the action the Government are taking to achieve better, faster and more responsive results than legislation.

It is also worth mentioning that we have tried very hard to work with the industry on these matters. Indeed, last November the industry produced a payday and short-term loans code of practice. I would argue that if everything in the code was being complied with, there would not be anything like the number of problems that are being experienced, such as three days’ notice from a continuous payment authority—that is mentioned in the hon. Gentleman’s Bill, but it is already in the code of practice—or affordability assessments or better information on constraints and roll-overs. The vast majority of the industry has already signed up to that and I think that the real issue is delivering it, which is why we recognise that further regulation is needed through the FCA.

We need to assess the progress that is being made with codes of practice so that the FCA has information on how the industry is complying with what it has signed up to. If the industry itself has signed up to something, I am sure the FCA will consider whether it is worth turning it into a firm rule when it publishes its rules. The Department has launched a survey to encourage customers who have used payday loans to undertake a quick online survey of their experiences, so that we can better assess the extent to which lenders are complying with their codes. I tweeted a link to that survey earlier today, if anyone listening is keen to take part in it.

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Several hon. Members rose

Jo Swinson: I will take a few interventions. My hon. Friend the Member for Portsmouth North (Penny Mordaunt) asked first and then I will take an intervention from the hon. Member for Glasgow North (Ann McKechin), who has not yet intervened.

Penny Mordaunt: I thank the Minister for giving way. I want to respond to the accusation that some of my colleagues and the Minister herself are seeking to talk out the Bill. Although my hon. Friends the Members for Shipley (Philip Davies) and for Christchurch (Mr Chope) are a dynamic duo, I would point out, as someone who is sympathetic to the Bill, that they could not possibly do a better job today than the Labour Front Benchers.

Jo Swinson: I thank my hon. Friend for her description of my hon. Friends the Members for Shipley and for Christchurch as the Batman and Robin of Fridays in the House. We will obviously have to wait to hear what Members want to say.

Ann McKechin: I am grateful to the Minister for giving way. Does she agree that the basic problem is that self-regulation, as in other jurisdictions across the world, has completely failed, and that time is of the essence and that we need to get on with regulation now, not in another two years?

Jo Swinson: I absolutely agree with the hon. Lady: that is exactly the point I was making. We have tried to work with the industry and it has produced its voluntary codes, but the Citizens Advice survey suggests that it is not sticking to them. The industry also committed at the time to monitor the compliance with those codes by this summer. Only one of the four main trade associations in the industry has said that it will do that monitoring; the others have not even agreed to comply with that. That is why we are transferring consumer credit regulation to a new independent regulator, the Financial Conduct Authority, which will have real teeth to clamp down on the problems in this market.

Philip Davies rose

Mark Durkan rose—

Jo Swinson: I will give way to my hon. Friend the Member for Shipley and to the hon. Member for Foyle (Mark Durkan), and then I will make a little more progress.

Philip Davies: I am not sure whether I am Batman or Robin in the Minister’s mind, but perhaps she can expand on that in a moment.

My understanding is that, a week or so ago, the Government and Ministers held a summit on this issue with interested parties. Will the Minister give us an update on any results of that summit?

Jo Swinson: Absolutely. I will mention the summit; my hon. Friend anticipates my remarks. If he has a little patience, I am sure that he will have the information that he is looking for. I will not comment on whether he is Batman or Robin. Hon. Members can make up their own minds.

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Mark Durkan: Perhaps the Joker.

A few minutes ago, the Minister made the point that the problems are complex and that the solutions will not be simple. Why, then, is she adopting a position of leaving it to the untested, unproven role of the FCA? Simples. That seems to be the Minister’s position and seems to contradict the very arguments that she is making about the nature of this problem. I hope that the role of the FCA will work, but it will be one role among its many other competing responsibilities. We as a Parliament have responsibilities, too. The hon. Gentleman’s Bill is giving us the chance to meet those responsibilities.

Jo Swinson: I understand the hon. Gentleman’s point, but, first, the Financial Conduct Authority is not the only thing that is happening; and secondly, because of the complexity, it is better to have a regulator that is able to make rules and to change them quickly, because markets change quickly. That is the whole point of having a regulator that can be responsive. Otherwise, if primary legislation sets out everything prescriptively, it is much more difficult to respond to changes in the market. Indeed, the Financial Conduct Authority has also made it clear that this is a priority for it. I hope that that provides some reassurance.

Paul Blomfield: I want to restate, as the Minister will know from discussions that we have had, that the Bill does not seek to limit the opportunities for the Financial Conduct Authority to respond to a changing market. It specifically does not include detail; it provides a direction of travel and empowers the Financial Conduct Authority. In that context, would not it be better if we could talk about the detail in Committee?

Jo Swinson: I welcome the hon. Gentleman’s contribution and his constructive approach to this matter, but I would say that his Bill limits the independence of the Financial Conduct Authority. It is not helpful for us to set that out or to mandate exactly what it should do. The FCA is producing a draft rule book for September, which is only two months away—we are not talking about this going into the long grass—and it will be consulted on. I am sure that the hon. Gentleman and other hon. Members will want to contribute to that consultation. That rule book will then be finalised in advance of the transfer of consumer credit regulation, which, of course, happens in April, so it will be in place then.

Of course, the Financial Conduct Authority will have really tough new powers. The Office of Fair Trading, the current regulator, was mentioned earlier and I will come to its action shortly. We have recognised that stronger powers are needed. The FCA will have new powers to make binding rules on firms, including to ban certain products if necessary. It will have tougher sanctions—for example, the ability to impose unlimited fines and to order redress for consumers who have been ripped off. It will also be setting a higher bar for entry in the first place, so when it is granting a consumer credit licence, the applicant will have to prove that its business model is not based on ripping off consumers. We had the discussion earlier about roll-overs and whether, if some companies are making significant proportions of their profit from roll-overs, their business model in fact

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depends on people’s not repaying in time, and whether that is an acceptable business model. The FCA will be able to look into these issues before people get a consumer credit licence.

The FCA has made it clear that it is committed to plugging gaps in payday regulation and has outlined four specific areas that it wants to target: first, affordability checks; secondly, continuous payment authority; thirdly, advertising; and fourthly, roll-over loans—all of which hon. Members have rightly raised today as issues of deep concern, and which the FCA has said it is keen to tackle as a priority. Indeed, the chief executive of the FCA, Martin Wheatley, has written to me to outline its work on that, and I will place a copy of that letter in the Library so that Members can have a look.

The Office of Fair Trading, the current regulator, recently announced a crackdown on payday lenders and has been delivering real results. It has also referred the market to the Competition Commission, to investigate the root causes of problems with payday lending and it can, of course, use its powers to fix that. An investigation by the Competition Commission is a serious thing. It takes a bit of time, which is why we are ensuring that we take other action at the moment—it is important to do that at the same time. However, it is important that fundamental problems within the payday lending market are looked at, and the Competition Commission is well placed to do that.

The National Audit Office report into the OFT was mentioned. Of course, one of our responses to that has been to ensure that the OFT has further powers. For example, in February, we gave the OFT further powers to suspend a credit licence immediately, if it had reason to believe that that was necessary to protect consumers, rather than waiting to go through the whole process of revoking a licence. We are also transferring the regulation to the FCA, which will have more powers. It is important, in the spirit of balance, to recognise that the NAO also said in its report that it was encouraged by the action that the OFT had been taking on this issue since March. I should like to share with the House a little bit more about where that has got to, because the situation is changing every week owing to the action that is being taken.

In March, the OFT completed its review into compliance in the payday lending industry. It identified the top 50 firms, which between them make up more than 90% of the market, and did a significant investigation into the practices of each of those. Those 50 lenders were sent a detailed dossier of where their practices were not up to scratch, with a 12-week deadline to sort out the problems that they were causing or face losing their licence. That has brought real results. Those 12-week periods, which are on a rolling basis to enable the OFT to process the responses, have been coming to an end and will all be finished by the end of this month.

So far, 28 of those 50 have responded to the OFT. I am sure that hon. Members will be interested to hear that 10 of those 28—more than a third—have left the

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payday lending market altogether as a result of that action, either by giving up their consumer credit licence entirely or by continuing to operate in other areas of consumer credit but no longer in payday lending. In addition, a further three licences have been revoked from lenders outwith the 50 largest and one further licence has been handed in. So since March, 14 payday lenders, including 10 of the biggest 50, have left the payday lending market. That shows that the tough action is starting to work. Market exit can be a good thing in a market where there are significant concerns about unscrupulous behaviour.

To respond to my hon. Friend the Member for Shipley, last week I called the payday lending summit to take stock of the progress that we had made since March and to look ahead to the new FCA regime. We delivered a strong message to the payday industry that it must get its house in order in preparation for the transfer next April. The meeting included regulators from the OFT, the FCA and the Advertising Standards Authority, which has a role in advertising that I will come to. It also involved charities and campaign groups such as Citizens Advice, Which? and those who provide debt advice to individual consumers. It was a successful summit. It was helpful to have that kind of event as the FCA produces its rule book that is due in September. I was very encouraged by the responses from the regulators.

I will turn to the various issues that are raised in the Bill. First, advertising is something that I feel strongly about. People should not be lured into taking out a payday loan when it is not the right thing for them to do. [Interruption.] I am not sure whether the hon. Member for Harrow West (Mr Thomas) wants to intervene. I am happy to be generous if he does.

Philip Davies: Will the Minister give way to me as she is in such a generous mood?

Jo Swinson: As my hon. Friend recognises my generosity, I will give way.

Philip Davies: I am surprised that the Minister glossed over so quickly the summit that she held on 1 July. According to the statement from the Department for Business, Innovation and Skills, the summit included a “frank exchange of views”, which slightly flies in the face of the picture that she is trying to paint. One of the trade association representatives who attended the summit and highlighted information from a report called “Credit, debt and financial difficulty in Britain” said that those present did not appear to have read the report and were not interested in its findings. Would the Minister like to comment on that part of the summit?

Jo Swinson: I know exactly who my hon. Friend is referring to. I would merely point out that they were very selective in their use of statistics. For example, they ignored the fact that the payday lending market has doubled in recent years. The fact that there was a frank exchange of views in no way contradicts what I said about our delivering a clear message to the payday lenders about what they have to do to get their house in order.

My hon. Friend the Member for East Hampshire (Damian Hinds) spoke well about how adverts pretend that such loans will solve problems that they will not

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solve. The adverts suggest that a payday loan is the answer to problems such as not having enough money towards the end of the month. If people find themselves in that position, the answer is not to take out a payday loan, but to get some good financial and debt advice.

When legislating on advertising, the evidence base for what should be brought in and what will work needs to be strong. The FCA will have powers to ban misleading financial promotions and to create rules on advertising payday loans. At the press Q and A after the summit, the chief executive of the FCA made it very clear that he would consider all sorts of rules that could be made with regard to advertising, including on the timing of adverts and the content that needs to be included. The FCA is very clear that it is looking at that issue.

It is important to proceed on the basis of research and evidence. BIS has commissioned Ipsos MORI to conduct qualitative research into the impact of advertising on consumer behaviour because we want to know what changes would be most effective in helping consumers. It would be easy to pull something out of the air and say, “This is what we should do on advertising,” but we want to know what works.

My hon. Friend the Member for East Hampshire talked about the wallpaper of life: the little annotations that we hear and see in adverts all the time, such as “terms and conditions apply” and “shares may go down as well as up”. Do we actually respond to all those things or would other things be more effective? The research will look at what health warnings or wealth warnings might work on such adverts, whether signposting debt advice might be more effective, and what is the best way of simply explaining the cost to people. There is a range of reasons why APR is not the most relevant figure in the context of payday and short-term credit advertising, not least of which is that many people do not understand what APR is. Is there an easier way to get that information to the consumers? That research will provide evidence to inform the FCA as it develops its rule book. We will publish the findings in the autumn.

The next issue is roll-overs. The hon. Member for West Ham (Lyn Brown), who is no longer in her place, made an interesting intervention in response to my hon. Friend the Member for Shipley. She was right to say that people are often not lending £150 at a high interest rate for just two weeks. If it was just for—[Interruption.] I do apologise. The hon. Lady is in her place but I could not quite see her behind the Table. She was right to highlight this issue. If somebody is lending money over a very short period at a high interest rate that basically covers the administration cost of setting up the loan arrangement, that is not necessarily problematic. The problem arises when that short-term loan is no longer short term, but becomes medium or long term because it is rolled over from one month to the next. That is when the APR is much more relevant, because people are taking out a much longer-term form of credit. Roll-overs are therefore problematic. In some cases, even one roll-over is too many.

Mr Kevan Jones: Why are the Government and the hon. Lady opposed to legislation such as that common in Canada, for example, which bans roll-overs in some places or limits the length of a loan?

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Jo Swinson: I am not opposed to regulation or rules on that, but the issue is whether it is best for the Financial Conduct Authority or the House to put the rules in place. We have given responsibility for regulation to an independent agency that has tough powers and the ability and expertise to look at specific evidence on what will be most effective, and that is where rules will best be made. The FCA has said it will look carefully at what needs to be included in the rules on things such as roll-overs, and the voluntary code to which lenders have signed up states that they too believe that some restrictions on roll-overs are appropriate within the industry.

Mr Jones: Would it be sensible to let the Bill go to Committee rather than vote against it today so that some of those issues could be explored, or is the hon. Lady doing the dirty work of the Conservative party and clearing the decks for the European Union (Referendum) Bill?

Jo Swinson: That intervention hardly merits a response. I am here because I am the Minister responsible for issues that affect consumers and consumer credit. We have significant problems in the payday lending industry, and my priority is finding the best way to solve them. I do not believe that the House prescribing these measures is necessarily better than it being done by the FCA. The FCA can put rules in place and, importantly, can change them whenever the market changes. We know that the market is fluid and that it changes regularly. If rules are put in place and practices change to get round them, the FCA can act swiftly to ensure that loopholes and gaps are plugged. That is a better way of protecting consumers, although the hon. Member for North Durham (Mr Jones) is entitled to disagree.

Mr Chope: Will the Minister give way?

Jo Swinson: I will make a little progress and then I will give way to my hon. Friend. Existing guidance from the Office of Fair Trading includes provisions on roll-overs. It is cracking down on non-compliant lenders, and earlier I mentioned some of the firms that have already left the market as a result of such action. The FCA has power to cap the duration of credit, and could take action to limit roll-overs. The hon. Member for Sheffield Central mentioned the deliberate strategy of rolling over loans, and if there is a flawed business model that relies on such behaviour, the FCA could decide not to grant a licence in the first place. The Competition Commission will also consider that issue in its wider market investigation.

Mr Chope: Will the Minister give way?

Jo Swinson: I would like to make a little progress, and then I will let the hon. Gentleman make his point.

Affordability checks are vital. One of the most shocking facts is that nearly half of those who take out a payday loan already show signs of financial stress. We must have proper affordability checks so that people are not given loans when they cannot afford to repay them; all that does is embed them in a further spiral of debt.

Existing OFT guidance clarifies how lenders should check the ability of borrowers to repay, and it is cracking down on that issue. The FCA will also have powers to

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tackle consumer harm. It has prioritised affordability assessments as an area for potential intervention, and that will be included in the consultation.

Mr Chope: On the roll-over, if somebody takes out a short-term loan of £150, for example, for a month, but at the end of that month they cannot pay back the loan plus interest, what does the Minister think they should do?

Jo Swinson: It depends on the specific circumstances. Current guidance does not necessarily suggest a ban on roll-overs, but there is evidence that some practices mean that borrowers, including those who are not necessarily unable to repay the loan, are proactively offered a roll-over—for example, by text message. That gets them into more debt and incurs more charges, even though they may have been able to repay the loan. There is a suggestion—more than a suggestion: evidence—that there are problems with roll-overs, but that does not mean that every roll-over is wrong. We also want to encourage lenders to recognise and show leniency when borrowers get into difficultly. That is also important. There is sharp practice with roll-overs, whereby the lender perhaps appears to be helpful in offering extra time when that might not be the right thing for the consumer. We are discussing a short-term product. If a proper affordability assessment is performed, the number of occasions when a borrower is unable to repay a short time after it was granted should be relatively low, and such occasions really should be the result of unexpected emergencies or circumstances that could not have been predicted weeks earlier.

There is also concern regarding the use of continuous payment authority. This tool allows lenders to dip into a borrower’s bank account to see whether they have enough money in their account to make a repayment, and to do that multiple times—sometimes hundreds—a day. Many card issuers and others in the financial services market are concerned about how that is being done. The Bill suggests three days’ notice of CPA and an awareness of the right to cancel. Those measures are already in the voluntary code. If they were stuck to and ended up in the FCA rules, that would be helpful.

It is important to clarify that people have the right to cancel continuous payment authority. Indeed, the FCA has recently made it clear to banks that if their customers wish to cancel CPA they have a responsibility to ensure to that that happens. Further, if customers have paid erroneously through CPA after they have asked for it to stop, the banks should refund the consumer. Banks will also have to undertake a review of such cases in the past few years.

It is important to respond to an issue raised by the Bill, although I accept that it is not something that the hon. Member for Sheffield Central was prescribing. A cap on the cost of credit sounds like a neat and simple solution to the concerns in the market but it is not, as my hon. Friend the Member for East Hampshire eloquently set out. This is a complex market and clumsy interventions could have unintended consequences. The Bristol report findings indicate that a total cost of credit cap could risk harm to consumers, reduce access to credit and lead to less tolerance by lenders of customers with repayment problems.

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The evidence from other countries shows that in some EU member states interest rate caps have resulted in reduced credit access for low-income consumers. In Australia, lenders have imposed charges outside the cap, or developed products outside regulation. Sometimes a cap results in a move to rent-to-own credit. I am sure Members will be aware of places on the high street where technological gadgets can be bought at a very high hire purchase fee. The expansion of this market occurred in Michigan in the US, where pawnbroking thrived following restrictions on payday lending. It is important to follow the evidence.

The Government have ensured that the FCA’s powers will allow it to impose a cap if it decides that that is the best way to protect consumers, and that doing so is consistent with its statutory objectives. The hon. Member for Sheffield Central talked about a report on the cap and I want to reassure him on what the FCA will have to do. It is already required to set out in guidance how it is achieving its objectives and to report against that in its annual report, which the Treasury will lay before Parliament so that it can be scrutinised by the Treasury Committee. The Public Accounts Committee also has the ability to scrutinise any National Audit Office reports on the FCA. The FCA is, therefore, already able to set out in its annual report what it is doing and why, and, importantly, Parliament is able to scrutinise it.

Before I conclude, I would like to touch on alternatives mentioned by the hon. Members for Harrow West (Mr Thomas) and for Birmingham, Northfield (Richard Burden). Credit unions are an important alternative, and the hon. Member for Birmingham, Northfield mentioned the role that post offices can play. They can help credit unions and it is important to note that they are piloting current accounts, in particular the control account, which is aimed at people who may not have had significant bank accounts before and may want a lot of control over managing their money. We hope to see that rolled out across the rest of the country. Furthermore, the Department for Communities and Local Government is running a competition to get post offices to play a greater role in their communities, some of the prize money from which they could use better to help those in financial difficulty. Financial education is key, however, hence the importance of the Government’s moves to have it provided in schools. Some people taking out payday loans have access to alternatives, but are not using them, partly because the advertising is so effective and partly because of the speed and convenience of payday lending compared with the discussions with a bank about an overdraft.

Martin Lewis, from Money Saving Expert, has produced an interesting guide on payday lending. Money Advice Service also has a lot of information on its website. Martin Lewis has made the excellent suggestion that if people are worried they might need emergency credit in the form of a payday loan, they could instead take out a credit card, stick it in an ice cream tub filled with water and keep it in the freezer, which might instil in them the discipline of not being tempted to use it for everyday spending. Should they need emergency credit, however, they could use the credit card in the short term and pay it off before the next bill, thereby not paying any interest. There are ways of getting around it, but I appreciate that not everybody will want to follow that advice.

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As mentioned, on credit unions, the Government are increasing the monthly interest cap from 2% to 3%, which will help credit unions, and investing £38 million in helping them to improve their services and compete better with other forms of credit.

The Government absolutely share the concerns that the Bill is designed to address, but, working with the regulators, we already have a strong package of action in progress to tackle them. In the immediate term, the OFT is pursuing tough enforcement action, with its referral of the market to the Competition Commission, while in transferring consumer credit regulation to the FCA we have ensured a strategic solution to many problems in the high-cost credit market. The FCA’s tough new powers will enable it to take targeted action more flexibly and faster than the Government could. It will have the tools to make balanced judgments on potential interventions based on robust evidence, consultation and cost-benefit analysis.

I agree with the hon. Member for Sheffield Central about the problems and I have set out how the solutions we are pursuing are already starting to work. I appreciate his introducing the Bill and this useful debate—maintaining the profile of the issue helps to apply pressure on the industry to shape up—but I hope he will recognise that our actions and those of regulators are a better way of tackling the problems. I hope he will take that on board and decide to withdraw the Bill. On the off chance that he does not, and regardless of what happens to his Bill, I look forward to working with him, other hon. Members and campaigners outside the House to clamp down on unscrupulous and irresponsible payday lenders.

12.7 pm

Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): On behalf of the Opposition, I support the Bill introduced by my hon. Friend the Member for Sheffield Central (Paul Blomfield). I was bemused by the claim from the hon. Member for Portsmouth North (Penny Mordaunt), who is no longer in her place, that the Opposition were trying to delay or talk the Bill out; nothing could be further from the truth. In all things this week, I hope I have been a model of restraint, and I intend to continue in that way this morning by making a brief intervention in support of the Bill in order to allow Back Benchers to contribute.

My hon. Friend gave an eloquent and thoughtful presentation of the Bill. It was interesting to hear him highlight the cross-party support for these measures, built on the growing consensus about what the key components of regulation ought to be. I hope the Minister heard that and took it on board. It was correct that she spoke at length, because it enabled her to lay out the issues, particularly around the summit she held and the other work undertaken. I hope she understands that, as my hon. Friend said, Citizens Advice, Which?, the Centre for Responsible Credit, the charity StepChange and the Centre for Labour and Social Studies—which have all published or given opinions on this issue—have highlighted the difficulties and issues faced by ordinary people who get involved in payday loans. He also paid tribute to the many people who give advice on debt locally. I add my congratulations to them on the work they are doing in difficult economic times, as they try their best to ensure that people have the correct information.