Cost of Living (Payday Loans)
The next item of business is a debate on motion S4M-05504, in the name of Kezia Dugdale, on the cost of living. I call Kezia Dugdale to speak to and move the motion. You have 10 minutes, please.
15:50
Before I begin, I draw attention to my entry in the register of members’ interests as a Co-op MSP and a member of Capital Credit Union.
For many people across Scotland, today is the last day before pay day in what is the longest month of the year financially, which comes immediately after the most expensive. Not having enough money to pay the bills for rent, fuel and food is a worry for many people in January, but hundreds of thousands of people throughout Scotland face that struggle every month. Every week and every day, the worry preys on their mind.
Payday loan companies have exploited those pressures for profit. As a consequence, high-interest short-term lending was one of the fastest growing industries of 2012—it was worth well over £1 billion to the United Kingdom economy. Today, I intend to outline the problem and explain why I anticipate that it will get significantly worse in 2013. I will then seek to outline what can be done to address the issue, in the hope that the Scottish Government will adapt some of these ideas and show some serious leadership.
The rising profits of payday loan companies should come as no surprise to anyone who has been up their local high street recently. There has been a great explosion in the number of payday loan retail units. For example, when I recently had half an hour between meetings in Edinburgh, I took a walk down Leith Walk and within half an hour had managed to find nine different payday loan outlets, which are within five minutes’ walk around Leith. Facing the eyeline of anyone who comes out of Central station in Glasgow are four payday loan shops. There are three such shops within five minutes’ walk along Stirling’s Pitt Street. As payday loan companies do not conduct credit checks, it is easy to take out thousands of pounds within a couple of hours literally by walking from one shop to the next.
The danger comes not just from our high streets but from relentless television and radio advertising, doorstep sales and targeted emails and online marketing. People can borrow £500 from Wonga on their mobile phone within 15 minutes without a credit check. One constituent who registered with the recruitment website jobinaclick.co.uk found that the website sold on her details, so she found herself being bombarded by targeted emails around pay day that offered her hundreds of pounds at reasonable rates. Their presence is relentless.
It is interesting to note that the marketing strategy of these companies has changed over the past few months. The adverts used to promote life’s little luxuries such as a new mobile phone or another foreign holiday; now the adverts focus on people paying their bills. That fits very much with the findings of a recent Which? report, which shows that most people take out payday loans for bills, food, fuel and emergencies—people who are clearly struggling to make ends meet. The typical payday loan customer is not what one might think. As the Citizens Advice Scotland report highlights, 75 per cent of clients with payday loan difficulties are in full-time work, the majority of them are men, the majority of them are under 35 and 30 per cent of them own their own home. This is working Scotland.
Frankly, it is a scandal that families in 21st century Scotland can work a full paid week and still live in poverty. The living wage is clearly an answer. To anyone who disagrees, I put the question: if work is really paying, why is it that six out of 10 kids living in poverty in Scotland come from working households?
Will the member give way?
Sorry, I have a long way to go, but I hope that Mr Mason will contribute to the debate later.
That is where we are now, but things are about to get a lot worse. Currently, 125,000 people in Scotland—1 million across the UK—are completely unbanked. Come October, many of those will need to get a bank account in order to access universal credit. The only thing that people need to get a payday loan is a bank account, so a whole new enticing market is about to open up for payday loan companies to exploit. Combined with the fact that benefits will move from being paid two weeks ahead to four weeks in arrears, that means that thousands of Scots will instantly face a six-week cash-flow problem.
As members who have read today’s Govan Law Centre briefing will know, a further problem that arises is associated with the bedroom tax. People with an extra bedroom in their house who do not want to move may well end up at a payday loan company to finance the difference between their income and their rent. That is another huge market for predatory lenders to exploit.
That will be a huge issue not just for individuals but for housing associations and local authorities, which are seriously worried about rent arrears. The problem will affect not just the security of tenants but the credit rating of housing associations. I would be so bold as to say that some housing associations could fail as a consequence of increased rent arrears. Any such problem will fall squarely on the Scottish Government’s doorstep.
That is the problem, but what can we do about it? First and foremost, we need to regulate these companies. They are here only because they have been forced out of America, state by state, through legislation. My Labour and Co-operative colleague Stella Creasy has been leading the charge at Westminster to cap the cost of credit and to legally limit the number of roll-ups, which is when people take out one loan to pay off another. That is an important point, because the industry body for payday loan companies tells us that 90 per cent of payday loans are paid off in full. Of course they are, because people are told to take out another loan to pay off the first one, and that is a much larger sum at a much higher rate.
Stella Creasy, along with trade unions and community groups across the country, has built a movement that is so strong it has forced the UK Government to reverse its opposition to a cap on the cost of credit. I am therefore surprised that the Tories seek to delete that commitment from the motion. Regulation is reserved to Westminster, but debt is devolved, which is why I have set up a campaign in Scotland called debt busters, which seeks to do three things. The first is to take on payday loan companies street by street; the second is to promote credit unions and their capacity to offer credible alternatives; and the third is to seek to change the law to improve debt relief for those who find themselves in serious trouble.
I will give members an example of that in practice. In Craigmillar in the east of Edinburgh, I work closely with Castle Credit Union and Link Housing Association on a joint campaign against payday loan companies. We jointly produced a leaflet and delivered it to thousands of homes in Craigmillar and Niddrie. That led to joint money advice surgeries, and we now regularly share resources in relation to newsletters and other such items as we work together against these companies. Many of my colleagues are now doing similar things in their areas.
I have a long list of things that local authorities can do to crack down on payday loan companies. I will not talk about them today, although I would happily share them with any member who wants to see them. Instead, I would prefer to use the rest of my speech to make two specific asks of the Scottish Government.
The first is to ask the Government to look seriously at the concept of a wealth warning on payday loans. In 2010-11, the Government spent £6.78 million on public information and marketing campaigns, with the figure rising to £7.13 million in 2011-12. That money is being spent to educate us all not to eat fatty or salty foods and not to drink too much—it is being spent on health warnings. If we seek to educate the public about their health, why cannot we do it about their wealth? I would like the Government to run its own think twice campaign on payday loans, to expose the risk and promote the alternatives, which include the Government’s core money advice services. I am pleased to have explicit support for that measure from the Scottish Trades Union Congress and the Church of Scotland.
I have raised the issue with the minister previously and I understand his concerns about the Government taking such direct action. However, if he is still willing to address the issue of payday loan companies, he could consider facilitating another organisation to take on that work, which is an approach that Citizens Advice Scotland has supported.
Part of the problem is that banks’ short-term lending has shrunk by 20 per cent in the past few years, creating a new market. At the very least, the minister should get third-party organisations such as Citizens Advice Scotland and the banks round a table to try to make the approach work. There is precedent for such an approach, because big energy companies fund big energy week, which is usually successful. All that is needed is leadership, and Mr Ewing is the man to do it.
A second action that I would like the Government to consider relates to how it supports credit unions. In the previous financial year, the Government gave £1.2 million to credit unions. Much of that money was spent on business development, but they now need help with product development. A few of the larger credit unions offer same-day payday loan services. Scotwest Credit Union started it with the fast £500, which is linked to its current account, and Capital Credit Union has recently introduced its swift 500. The annual percentage rate for both those loans is just 26 per cent. If someone was to take out a loan with Wonga today, they would be charged 4,200 per cent for the same amount.
Those are great, credible, accessible and—crucially—affordable alternatives, but a number of small credit unions simply do not have sufficient capacity to offer such a product. They need a guaranteed loan fund: a sum of money from the Government for the purpose of lending by credit unions. The minister might ask where that cash would come from. It could be redeployed from existing credit union funds but, ultimately, it would be preventative spend, because his goal is to prevent people in Scotland from falling into rent arrears and causing his Government a problem with the debt that that will create. I know that the minister has huge respect for the work of credit unions. He now needs to show that by providing support to address the impact of payday lending and the financial pressures that thousands of Scots face.
The challenge is huge, but we are not powerless to act. With a bit of leadership and creative thinking, the Government could take on and beat legal loan sharking in this country. I hope that the Government will rise to the challenge today.
I move,
That the Parliament recognises that January is a long and hard month for working families, made even worse in 2013 by the ongoing recession and austerity programme; notes with concern the rapid boom in payday loan companies that target low-income working people who struggle to make ends meet; recognises the need to both regulate more heavily payday loan companies and cap the total cost of credit; believes that local authorities and the Scottish Government should demonstrate leadership and seek to curtail the explosion in high interest, short-term lending that results in huge debts and financial misery for thousands of people in Scotland; notes that the welfare reform changes will force more people in Scotland into debt; recognises the important role that credit unions can play in providing a viable alternative and, believes that the Scottish Government should take the lead and warn against the dangers of legal loansharking.
16:00
It is clear that there is a huge amount of interest in the motion, which is emphasised by the fact that the debate is well attended.
The Scottish Government absolutely accepts that January can be the most difficult month financially for a great many people. We understand that people may find it tempting to seek extra cash from payday lenders to deal with unexpected bills or simply make ends meet, but we strongly urge anyone who seeks a payday loan to consider other options before obtaining that type of credit.
I have been saddened to hear of many instances in which, rather than helping, such loans have led to individuals becoming entrapped in a cycle of debt when they are unable to pay back the loan. The loan is then rolled over to create a new loan on which further interest is charged, and the situation can spiral out of control. That is a truly contemporary development that causes grave concern across all parties, especially because, as Kezia Dugdale said, relatively young people are borrowing amounts for periods as short as 30 minutes, perhaps to spend in the bookies after a first bet has failed. The situation is very serious and is of concern to us all.
On the Parliament’s powers, I hope that a broad, cross-party approach can be taken. Payday lenders are part of the consumer credit sector and the law in that area is reserved to Westminster. The businesses operate under rules that are set out by the Financial Standards Authority and are regulated by the Office of Fair Trading. We believe that the rules must change, and we are not alone in that belief. Many countries in Europe and many states in the USA have introduced legislation to protect consumers from severe financial difficulty. There is a lot to learn from what has been done in other countries and in the USA. I hope that there is a willingness to learn and that those lessons can be learned.
However, we, too, have acted. I have written to the UK minister responsible for consumer credit. I have the letters here, but protocol means that I will not read from them. I have asked the UK minister to regulate payday loans and have urged the UK Government to consider a cap on interest rates for high-interest and payday lending.
I have not done that lightly or without a great deal of thought as to the consequences, because I am aware of the recent history on the issue at the House of Commons. I have taken some time to read the various deliberations of the House of Commons and the OFT. The OFT and the former Labour Government concluded that a cap was not appropriate. We need to look carefully again at a cap and I urge the UK Government to do that.
We all know the situation at Westminster regarding regulation in this area. I hope that Fergus Ewing will address some of the issues that my colleague Kezia Dugdale raised, and the issues that Margo MacDonald and I raised about 14 months ago with John Swinney. Very little has been done with the powers that the Scottish Government has. That is the point that Kezia Dugdale was making.
I was responding to Kezia Dugdale’s first point, which I did fairly and without resorting to scoring political, partisan points. I am coming on to the other point, although my time is running out.
I have had a number of meetings with all stakeholders to drive forward the use of the powers that we have. I recently convened a round-table meeting with representatives from money advice, credit unions and the payday loan industry to discuss payday loans and their impact on people in Scotland. I have written to all payday lenders who operate in Scotland to encourage them to comply with the good practice customer charter, and I will continue to monitor firms’ behaviour. I am told that four trade associations represent 90 per cent of the companies that are operating. That is all well and good, but what about the 10 per cent? What do they do? By definition, those companies might not be so willing to operate by the code.
On welfare reform, it is plain to see that the changes and cuts that the UK Government is introducing can have only a detrimental effect on people and services in Scotland. We are committed to doing all that we can do to lessen the impact of the reforms.
Between 2008 and 2010 the Scottish Government invested £12 million in the third sector enterprise fund, and 30 credit unions benefited from that.
We have used some of our advertising budget to promote practical solutions for people who are in serious debt. Kezia Dugdale asked about that, so I will respond to her. Last year, we had a successful advertising campaign to promote the use of the debt arrangement scheme—DAS—which allows debtors to pay off their debts, thereby relieving them of the huge and crippling anxiety that debt brings to many households throughout the land.
Will the minister give way on that point?
I am just about to finish, but I will give way as I close—I think that I have 40 seconds left.
I am afraid that you are in your final minute.
Yes, Presiding Officer. I apologise.
We recognise that being in debt is often an horrific experience. It leads to the breakdown of families. It causes parents—very often, mothers—unending worry and stress about how to bring up their families. It is the most serious of issues.
We have acted, using the powers that we have, to change debt law and to work with credit unions, working with the grain to do the best that we can do. We will do more, as we will announce next week in the debate on the DAS.
I very much hope that this debate focuses on the positive, the practical and the constructive, so that we in Scotland can unite and do our best for those who are suffering from the scourge of debt.
I move amendment S4M-05504.2, to insert at end:
“and notes that the Scottish Government has called on the UK Government to consider introducing greater regulation of payday loan companies, including a cap on the total cost of credit, and has contacted all payday lenders operating in Scotland to encourage them to comply with the industry’s Good Practice Customer Charter.”
16:07
I welcome Kezia Dugdale’s bringing the matter that we are debating before the Parliament. Were it not for the inevitable rolling-up of issues in her motion, we might have been able to support it. It is unfortunate that it ties the difficulties that are associated with payday lenders and other credit schemes to an accusation that the UK faces a difficult economic situation, while failing to recognise that the situation was caused by her party when it was in government. That means that we find the motion difficult to accept.
There is evidence that the economic policies that are being administered by the United Kingdom are doing a great deal of good in Scotland. After all, changes in the tax base mean that 2.2 million Scots will be paying less tax by 2013, with people on basic incomes who are working full time paying less than half the tax that they were paying only a few years ago.
Will the member give way?
No, thank you.
It is also important for us to remember that there has been significant news on the unemployment front. Unemployment fell by 14,000 in Scotland between September and November. Even the figure for youth unemployment for that quarter shows a 23,000 drop on the figure for the equivalent quarter in the previous year. We must also remember that in April last year the UK Government ensured that there was a 5.2 per cent increase in benefits across the board.
Therefore, it is difficult for some people to understand how the problem that we are considering can be pinned on a UK Government that is doing all that it can do to ensure that we in Scotland benefit from the economic opportunities that come our way.
Nevertheless, I share Kezia Dugdale’s key concerns about payday lending, which is why my amendment notes
“with concern the problems that some people are having with payday lending and welcomes the action that the UK Government is taking to tackle the problems associated with high-cost credit, including giving financial regulators the power to impose restrictions on the total cost of credit and giving the Office of Fair Trading a new power to suspend consumer credit licences immediately where there is an urgent need to protect consumers”.
How many licences have been suspended? What action is the OFT taking against the payday loan company that charges an estimated annual percentage rate of 68,300 per cent?
We must work together to overcome what is a serious situation.
This country has a problem with credit. There is a desire to ensure that credit is available but affordable, which is why Scotland’s two Governments urgently need to work together, hand in hand, to deal with the problem. Therefore, I am delighted to hear that there is at least correspondence between the minister and the UK Government, which I hope will ensure that we have an understanding of what is required. I hope that results will accrue from that contact.
I support what Kezia Dugdale said about ensuring that credit is available. It is significant that credit unions are developing support for people who require short-term loans. There is a huge opportunity for the credit union sector to develop a more hard-headed approach to money lending so that, when required, people can take advantage of that facility. It is therefore essential that we in this Parliament and the Scottish Government promote that sector over time.
It is disappointing that there has been a rolling-up of issues in the motion, because we genuinely feel that the issues relating to credit that are contained in the motion are worthy of support.
I again ask the minister to give a commitment that he will work with the UK Government. I will seek all the support I can to ensure that we get a similar response and create a two-way dialogue for the benefit of those who are disadvantaged by the situation.
I move amendment S4M-05504.1, to leave out from first “recognises” to end and insert:
“notes that the UK still faces a very difficult economic situation and welcomes the action that the UK Government has taken to protect incomes and reduce the cost of living by increasing the personal allowance, which will help 2.2 million people in Scotland and mean that, in 2013, someone working full time on the minimum wage will see their income tax bill cut in half compared with what they were paying under a Labour administration; notes also that cancelling the 3p rise in fuel duty planned from January 2013 will mean that there has been no increase in fuel duty for nearly two and a half years; further notes with concern the problems that some people are having with payday lending and welcomes the action that the UK Government is taking to tackle the problems associated with high-cost credit, including giving financial regulators the power to impose restrictions on the total cost of credit and giving the Office of Fair Trading (OFT) a new power to suspend consumer credit licences immediately where there is an urgent need to protect consumers; notes that the OFT has launched formal investigations into several payday lenders, and calls on the Scottish Government to liaise with the OFT to identify and take action against problem payday lenders in Scotland and to boost the role that credit unions can play in providing a viable alternative.”
16:12
I must admit to wondering whether or not parts of Alex Johnstone’s speech related to a parallel universe.
I very much agree with the thrust of Kezia Dugdale’s motion for the Labour Party. Clearly, we are in a recession, there is austerity and people who are on low incomes—whether they are working or unable to find work—are struggling. We all recognise that debt, especially high-interest debt, is a problem. I welcome the fact that the subject has been raised, but I am slightly disappointed that time for the debate is so short.
Debt consists of two overlapping problems: there is too much of it across society; and there is a specific problem for those who are struggling most to get by. It is clear that in the UK and in many other countries, Governments have borrowed far too much, but so have businesses and other organisations, as well as many individuals. Much of that borrowing has not been forced on them but has been through choice.
I remember my father telling me about borrowing money for a car, which I guess was in the 1950s. His father was appalled that he could be so rash as to borrow against a car. However, borrowing has become a normal part of life for many of us, and saving has become little more than wishful thinking.
I suggest that we need to change the mindset in society that borrowing is risk free and can be incurred without much thought. If someone has debts and their income falls, or if interest rates return to 15 per cent, as they were when I took out my first mortgage, they will have a problem.
We must recognise that some people have no choice as to whether they have food or not, or put money in the electricity meter or not. That is the issue that we are concentrating on today.
It is clear that debt is already a serious problem, but it is likely to get very much worse in the future, given that the welfare cuts will come in soon. If people have to borrow—one hopes only to tide them over in the short term—we need to ask how that can be done more safely.
The motion makes some suggestions that should be supported. It proposes increased regulation of payday loan companies—and, I presume, of other lenders—and a cap on interest rates, but it must be said that both those areas are under Westminster control. When I was down at Westminster, there was little sign of the then Labour Government making much effort in that direction.
The motion is a bit less specific about what demonstrating leadership means for central or local government, although Kezia Dugdale said a little more about that in her speech. It seems that anything that we can do here is very much around the edges; the real power lies down south.
Will the member give way?
Yes, despite the fact that Kezia Dugdale did not let me in for 10 minutes.
That is a fair point. I will be quick.
Does the member support the two ideas that I put forward?
I have just mentioned two—
No, I meant my ideas.
One of them was about advice, and I am just about to come on to credit unions.
The provision of advice is part of the answer to the problem, and I welcome the money that the Scottish Government put into that sector recently. The people who struggle with debt and who deal with dubious moneylenders are often the people who are furthest from libraries, the internet and other sources of information.
We need to encourage and support citizens advice bureaux and similar bodies. It would be preferable if they worked together in a network, which is why it was disappointing when Glasgow City Council had voluntary sector bodies competing against one another in its tender process the other year.
Yesterday, I visited Govan Law Centre for the launch of a report on its prevention of homelessness project, which talks about prevention a great deal. I think that that is the answer.
I will make three final points. First, January is a problem month. Is it still such a good idea to pay people their December pay before Christmas? Secondly, we need to encourage credit unions, but they have not yet taken off. Why is that? They have taken off in Ireland and Canada. Thirdly, the statutory minimum wage is far too low. We need to have a minimum wage that is a proper living wage.
16:17
I think that we are all feeling the pinch today—pay day is so near and yet so far. If we are feeling it, we can only imagine how people on much smaller incomes are faring.
Last week, the Economy, Energy and Tourism Committee took evidence on underemployment. We were told about a very stark case involving a young couple and their children who came to a citizens advice bureau. When they came to the CAB, the parents had not eaten for a number of days. The husband was working, but he worked for less than 25 hours a week. The family had lost their working families tax credit as a result of changes to the qualifying hours. It transpired that the husband’s wages had been doing little more than covering his travel costs to and from work, and the family had lived off their working families tax credit. Once that went, they had no money. If he had given up his job, they would have been penalised and would not have received any benefits. Whichever way they looked, they could not feed their children. What a position to be in, especially in modern, supposedly civilised, Scotland.
The CAB ensured that the family received a food parcel immediately and started working with them. Further changes to benefits will mean that many more people will find themselves in that position. How easy it would have been for that family to take out a payday loan, but that would only have made matters worse. Many people are in that situation. Payday loans are so accessible that they must be a huge temptation. In the briefing that Citizens Advice Scotland has provided for the debate, it cites cases that bring to mind loan sharks much more readily than high street providers.
Although financial regulation is a reserved matter, the Scottish Government can act. As Kezia Dugdale suggested, it can provide public information that discourages people from taking out payday loans. Indeed, we should all do that by whatever means we can. The Government should also look at planning legislation to ensure that planning permission is required for any change of use that would result in a high street shop becoming a payday loan outlet. That would allow councils to keep such outlets off the high street.
In addition, the Government could work with credit unions to help them to finance emergency loans at affordable interest rates. Historically, credit unions have been driven by the need to help with financial planning, encouraging people to save and only to take out borrowing that is sustainable, but social and economic changes mean that emergency loans are now required more often.
We need to look at credit unions’ opening hours. In a time of pay freezes and underemployment, those who would most benefit from credit unions may be in employment, but low-paying employers are probably not the most likely to allow such people time off to access a credit union.
We must do more to encourage use of credit unions by the whole of society. That would build them and make them much more sustainable for everybody. How much better it would be if rates and rent relief on empty properties in our high streets was given to credit unions to make them as successful as possible, and certainly as successful as payday loan companies.
Banks must develop a social policy. It has always struck me that those who have money can access cheap credit but those who can least afford it have always had to pay more. The interest that is charged by payday loan companies can run into many thousands of per cent. Some members have quoted the amounts involved, which can be breathtaking. However, the interest that is charged by companies that have traditionally lent to the less well-off are also much higher than the interest charged by high street banks and the like.
The debate is timely because we are waiting for our first pay after Christmas. We can all do our bit to remove the commercialisation of times such as Christmas, which leads to much greater pressure on the less well-off and can lead to hardship. However, we also need to make it easier for those who are in desperate straits to get the help that they need. The Government can do much more for people in that situation.
16:21
This is an important debate and I congratulate Kezia Dugdale on bringing it to the chamber. The issue is of great concern to many individuals, families and communities throughout Scotland and, judging by the turnout of MSPs today, it is an issue of great concern to us. It is just a shame that no Lib Dem could be bothered to turn up this afternoon.
However, I have to ask why the motion focuses on the roles of the Scottish Government and local authorities given that the legislation that controls interest rates rests with Westminster. Why has the Labour Party not condemned the inaction of the Con-Dem Government on the issue? Is the answer something to do with the history of the lack of action that took place at Westminster when the Labour Party was last in power?
Will the member take an intervention?
I am sorry. I usually take interventions, as members know, but I have only four minutes.
The powers to regulate payday loan companies more heavily and to cap the total cost of credit rest at Westminster. We have heard that the enterprise minister has already written to the relevant UK minister to seek greater regulation of payday loans and to urge the UK Government to place a cap on interest rates for high-interest and payday lending. Where the Scottish Government can act, it will do so; as the enterprise minister said, he is already working on the matter.
As regards action by local authorities, Dundee City Council’s SNP administration is leading the way. It is banning access to payday loan companies from its computers, including the public access computers in local libraries. At the same time, it is promoting the role of the local credit union as a viable alternative to high-interest, short-term lenders.
I turn to the impact that welfare reform will have on those who rely on benefits. In contrast to Labour’s support for welfare cuts, with its cuts commission looking at removing free prescriptions or the concessionary bus pass from 1.2 million older and disabled people in Scotland, the Scottish Government is trying to protect families with its social wage policy, council tax freeze, free bus passes, free prescriptions and free personal care. That all adds up to vital support for families across Scotland against the background of the Westminster cuts. Our commitment to a social wage will deliver benefits for everyone in Scotland.
The Scottish Government has already shown that it will not stand by while Westminster cuts fall hardest on the poorest people in Scotland. An extra £9 million was awarded to the Scottish welfare fund to reinstate the money lost through Westminster cuts, and more than £5 million is being provided to help benefits advice groups cope with the increase in demand for help from hard-hit families.
Labour members might complain about welfare reforms, but unfortunately their position is not that simple. Despite what they say in press releases, leading Labour MPs at Westminster such as David Miliband agree with the reduction in welfare spending. The only thing that is clear about welfare reform is that a fairer welfare system in Scotland can be achieved only with independence.
The Scottish Government has already provided support to credit unions. It recognises the valuable role that they play in providing financial services to a wide range of customers. Through the third sector enterprise fund, it invested £12 million in credit unions between 2008 and 2010, including £10,000 for Dumbarton Credit Union and £63,000 for Renfrewshire Wide Credit Union. That support underlines the support from the Scottish Government and the SNP for the credit union movement. We believe that credit unions are able to offer a viable alternative to high-interest, short-term lenders, and I urge all members to promote and support their local credit union.
The motion highlights Westminster’s austerity programme and welfare reforms. It highlights that there are things that Labour would prefer to see implemented on the people of Scotland, as opposed to the people of Scotland being able to decide on Scotland’s priorities through the Scottish Parliament and the Scottish Government. Labour acknowledges the impact of the austerity cuts and welfare reform, but it will not join the SNP in campaigning for the Scottish Parliament to have the powers to really deal with the welfare situation.
The Scottish Government is doing what it can with its limited powers under the current constitutional settlement to mitigate the excesses of the Westminster cuts agenda. It is a shame that it cannot be said that Labour is doing the same.
16:26
I am pleased that we are having this debate at this time, when people are beginning to receive their January bills, but I am a bit disappointed that Labour has halved the time to debate the matter.
When I read the motion, my first reaction was that I was a bit surprised by the call for action to tackle payday loans and high-interest credit, because the biggest impact on them can be made at Westminster, of course. Perhaps Kezia Dugdale is gradually realising that it would be much better if powers relating to those matters were devolved to the Scottish Parliament. We could take powers over those and other things as necessary and help those who are most in need in society.
Will the member take an intervention?
Not at the moment, thank you.
As other members have said, Labour had 13 years to take action on high-interest credit and payday loans when it was in power at Westminster, but it did nothing. Here in Scotland, why did Labour MSPs in the previous session not sign Kenny Gibson’s motion entitled “Time to Curb Excessive Interest Rates”? More recently, only five Labour members signed Mark McDonald’s motion on bringing forward the January pay date. The SNP did that when it was in power in Aberdeen City Council. It would be nice to see some consistency and continuity from the Labour benches. I wonder whether Labour’s cuts commission would take away from families the much-needed support that is so helpful in this area.
I am grateful to CAS for its briefing, which shows the reasons for the rise in the number of people who are struggling to make it to pay day. Those reasons are the stagnant economy, public sector cuts, mainstream credit being more difficult to access, and the number of people who hold and use an overdraft facility or credit card having fallen by around 1 million in the UK. The other factor, which Kezia Dugdale mentioned, is the speed at which customers can access credit without adequate scrutiny of their current commitments and their ability to pay back the loan. That has, of course, resulted in many people regretting taking out payday loans. They find that they are unable to pay them back and find themselves in a downward spiral of debt. Evidence suggests that lenders are unsympathetic to customers who find themselves in financial difficulties, and it is not clear that even lenders who have signed up to the new customer charter are adhering to the good practice that is advised therein.
I wish that citizens advice bureaux and credit unions had the ability to advertise their services as much as those who offer payday loans. People need to know that their first port of call should be their local credit union office, their citizens advice bureau, or even their MSP, who can direct them to the proper agency for their needs. Many organisations offer financial health checks and people may find out that they are entitled to benefits that they have not accessed or that an organisation can help them to reconfigure their debt. I have noticed that some churches now offer that service, too.
I am a member of a credit union, a supporter of credit unions, and I support their work in schools, but I get the feeling that that is not the position of successive Westminster Governments. Some credit unions in Scotland are increasingly frustrated by the lack of progress and support from south of the border and are asking themselves why they bother belonging to cross-border organisations in the field.
The credit union sector is stronger in Scotland. One in 20 people is a member here, but only one in 70 in Britain. Scotland is making more progress in this area, so the natural progression is for Scotland to take full control in this regard. I am happy that, with her motion, Kezia Dugdale, too, is beginning to see that.
16:30
Before I begin, I declare an interest, in that I am a member of Scotwest Credit Union, Glasgow Credit Union and the cross-party group on credit unions.
I am delighted to contribute to this debate on the increasingly squeezed standards of living for families in Scotland and to express my growing concern that a part of the financial industry that is responsible for the economic crash is continuing to profit from some of the most deprived people in our communities.
Companies offering payday loans have increased their market share by more than 400 per cent in the past three years. They now represent a significant presence on our high streets in towns and cities throughout Scotland. It is easy to understand the temptation of a cash advance on a monthly wage, particularly for those in low-paid employment, with household bills that consume the majority of their earnings. However, the interest rates on payday loans are nothing short of exploitative, with a loan of £300 over a period of 30 days costing around £100 in interest and fees alone.
Payday loans do not offer Scottish families a sustainable solution to what are often very serious financial problems, and more needs to be done to offer viable alternatives to such questionable business practices. Families who need access to affordable credit within a short timeframe have limited options, and they are often unaware of the provisions that are made by local authorities, organisations and charities in their communities, which are specifically designed to offer support to people in those circumstances.
I believe that credit unions hold the answer. As a Glasgow MSP who is active in the cross-party group on credit unions, I am delighted that one in five Glaswegians is a member of a credit union. In my region of Glasgow, Drumchapel Community Credit Union provides short-term loans to more than 3,000 registered customers in the local area, with an APR of between 15 and 26 per cent. Drumchapel Community Credit Union was the very first to be established in Scotland. For more than 40 years, it has provided families in Drumchapel with affordable credit to meet unexpected financial demands, such as the huge rise in the cost of energy for households over the past few years. Customers are encouraged by the team of staff and volunteers to repay loans over a longer period in order to spread the burden, and to develop a financial plan that details how their monthly income meets expected outgoings, so as to ensure that short-term loans do not need to be relied on as a source of income in the future. I call on the Scottish Government to support an increase in investment in Scottish credit unions so that they can offer products equivalent to payday loans on a fair and affordable rate of interest.
It is clear that the standard of living for Scottish families has been squeezed considerably. I understand the increased financial pressure that thousands of Scots endure as a result of low wages and high unemployment, and it is vital that the Scottish Government and local authorities recognise and support the invaluable work of local organisations such as credit unions and the key role that they play in tackling disadvantage and poverty throughout Scotland.
16:34
On 29 May last year I lodged a motion on payday lending, which was supported by only a few of my colleagues. It said that measures that had then been taken by the OFT and through self-regulation would not thwart the impending crisis. I regret to say that it was right, and that the crisis is now upon us. I congratulate Kezia Dugdale on bringing the debate to the chamber and on speaking to the motion with her usual passion and compassion.
The Economy, Energy and Tourism Committee took evidence last week on underemployment and heard from CAS witnesses of one honest, hard-working family with children having to share a tin of beans the day before pay day. Yesterday, chairing the cross-party group on social enterprise, I heard of the dramatic increase in referrals to housing association advice centres, which are referrals of not the unemployed, the disabled or others, but those in work.
Those and similar situations do not make me sad; they make me angry. The Pontius Pilate proposal by Alex Johnstone that some people are not being made slaves to the draconian and misguided fiscal, economic and benefits policies of Westminster is absolute nonsense. The Conservatives should be ashamed.
The immediate suppression of income and benefits further drives people towards very expensive payday loans, which in some cases are for paying off earlier loans. I understand the restriction imposed on the Scottish Government by the Consumer Credit Act 1974 and I support the SNP amendment’s aim to change the laws, but I believe that, in the short term, there might be another way to mitigate, if not expunge, the loans challenge.
The users of short-term loans in some parts of the US, Canada and Australia face similar issues of affordability, multiple loans, the cycle of debt caused by taking new loans and the rolling over of existing loans. Australia has already legislated to subvert excessive-interest loans, as have some US states. For example, in Florida, one can borrow only to a maximum of $500 through a payday loan; there are limited transaction fees; the rolling over of loans has been banned; and loan terms have been restricted to a maximum of 31 days—that should be our objective.
Some US states and parts of Canada use customised regulatory systems that protect customers while allowing registered payday and short-term lenders to operate profitably, but within reason. There is also a software solution operated by a company called Veritech that allows customer data to be shared among lenders so that a customer’s maximum borrowing limit is known to all lenders at any one moment in time, which means that the borrower cannot exceed their borrowing limit by hopping from one lender to another on the same day. The software also allows the restriction of loans, ensures that there is no borrowing during the repayment plan period and allows reasonable fee structures for responsible lending, which is what we should do, preferably through credit unions.
In supporting its amendment, I ask the Government at least to investigate the possibility of a partnership with credit unions and to look at the Veritech solution or similar solutions in order to counter the ravages of open-ended, non-self-regulated lending. Then, and only then, can we dissipate our anger.
16:38
I am pleased to close today’s debate for the Scottish Conservatives. We recognise that in these challenging economic times the cost of living is a big issue for families across Scotland, not least because of the increasing energy bills that so many of us face.
I agree with the comments of Kezia Dugdale and many others on the dangers of payday lenders and loan sharks. I was slightly surprised to hear her chiding John Mason for agreeing with two points that she had made. I thought that the point of debate was to try to get the opposition to agree with you. Anyway, I think that she should be pleased with him.
There was criticism of the actions of the UK Government from Chic Brodie, so I want to restate some hard facts for the record. In the most recent autumn statement, the UK Government demonstrated support for those on low and middle incomes by increasing the income tax personal allowance by £235 from April 2013, taking it to £9,440. That is further real progress towards the £10,000 target and it means that another 21,000 Scots will be taken out of tax altogether and that 2.2 million Scots will get a tax cut this April. After April, a Scot working full time on the minimum wage will see their income tax bill cut in half, compared with what they were paying under Labour.
What will the member say to the estimated 1,300 people in South Ayrshire who are likely to become homeless after the welfare reform package takes effect in April?
I am horrified at the fact that they are likely to become homeless. Maybe that has something to do with the fact that very few homes have been built by the present Scottish Government.
Oh, come on.
We have got the lowest house-building numbers for about 20 years.
The confidence rating that the UK Government enjoys on the international financial markets and its ability to borrow money at low levels has helped to keep UK interest rates at historically low levels, which has in turn meant lower mortgage rates and mortgage repayments for Scots, which is crucial to the cost of living for many families. Mortgage repayments are much lower than they would have been under Labour, which has no credible plans to get the public finances under control.
The cost of fuel has been mentioned and remains a huge issue, especially in my region, the Highlands and Islands. Again, in the autumn statement, the UK Government cancelled the 3.02p per litre fuel duty increase that was planned for 1 January 2013. That means that fuel duty will have been frozen for nearly two and a half years and is 10p lower than it would have been under Labour. In addition, the fuel discount scheme pilot in the Western Isles, Orkney and Shetland has cut the price of a litre of diesel or petrol by 5p for consumers in those island communities. Of course, the situation has not been helped for islanders and hauliers by the Scottish Government taking the road equivalent tariff away from commercial vehicles. That will increase the cost of living for everybody in those areas and has made things difficult for the hauliers that people rely on across the Highlands and Islands.
This morning, the Local Government and Regeneration Committee heard from Sir Robert Black, the former Auditor General for Scotland, on the subject of the value of preventative spending, which, if directed wisely, can cut costs in the future, leaving more money for other budgets. Clear thinking on preventative spending is key to saving money in the future. Reducing waste in Government and local government is a good way of reducing the cost of living for everyone else. Helping to grow the economy and create more jobs and economic opportunities is another key way in which the Scottish Government can help our constituents with the cost of living. However, taking substantial sums away from our colleges, removing significant amounts from the housing budget and increasing taxes on business are wrong choices.
I again call on the Scottish ministers to make better use of the economic tools that they have and to work with the UK Government to do all that they can to get the economy moving and help to increase our constituents’ incomes so that they can make more ends meet.
I support the amendment in the name of Alex Johnstone.
16:43
I wish to return to the matter at hand, which is debt.
The debate has been welcome, and I thank Kezia Dugdale and the Labour Party for bringing it to the chamber. We will support the motion tonight and hope that Labour will support our amendment. People expect us to work together; the last thing that people want to see in this Parliament, on this topic, is cheap political point scoring and a wide ranging tour de table about the perceived ills of various economic policies and the faults of various parties. What purpose would that serve?
I bring to the debate fairly long experience as a solicitor who worked in debt, before I was elected. That job was one of the most humbling and moving experiences of my life, because the people who came to me for help brought with them the most horrendous difficulties and problems. As I have said in the chamber before, it was often the female in the household who would face reality first and would come to me, usually accompanied by children. The overwhelming sense of worry on the mother’s part was not for herself but for her children—she wanted only to keep a roof over their heads. Such are the issues that we are talking about.
We are particularly concerned about the people who face extreme problems. John Mason was quite correct to talk about the old prevailing ethos that I think we would all recognise and which is summed up in the phrase “Neither a borrower nor a lender be.”
Previously, it was believed that taking on debt was something that should not be done lightly. Perhaps that ethos, which meant that people could not get a mortgage without saving for a long time, was not so bad. If it had prevailed in the 1990s and the noughties, would we be in the recession that we are in now? Credit unions manage their finances according to that ethos; they do not borrow irresponsibly and have behaved more sensibly and prudently than many fancy banking organisations throughout the world.
My solicitor experience brought home to me the predicament that people face. Of course, all MSPs will have had the experience of speaking to people in their constituency surgeries who face real pressure—bank foreclosure, the threat of losing their house, their children finding that they have no home and their home life being disrupted. That is the cause of huge pressure.
Of course, every human story is different. There is no point in generalising, because every life and every experience is different. However, we all have a duty to respond as we can. That is why I have sought to give a lead by giving a clear warning that payday loans offer a particular danger to people who take them up. If they are rolled over—if they are not repaid in the month in which they are taken out—they rapidly become unmanageable. We all agree about that.
I support, and the Government has supported, the second point that Kezia Dugdale made: namely, that we should use some taxpayers’ money to advertise positive debt solutions, as we did with the debt arrangement scheme last year.
I am sure that we will return to the matter next week, but surely the minister is aware that a debt arrangement scheme is no use to people who have payday-loan debt. It can take three months to establish a debt arrangement scheme. The extent of the Government’s action today has been to say that it has written two letters. Surely we will get more from the minister about what he will do next.
I say gently to Kezia Dugdale that it is wrong to characterise matters in that way. Next week, we will announce serious measures on which we have worked for some time. Not only will they show that we have taken a lead, but they will introduce a remedy that will be helpful to many of the people who face precisely the problem that she mentioned. It has been in planning for a long time. Next week, at the appropriate time, we will announce details of the measures that we propose to introduce.
We recognise that there is a role for the Government to play in using taxpayers’ money, which we have been entrusted to spend prudently, on advice and information about the risks of taking on dangerous debts and the positive solutions that are available. We have done that appropriately and will continue to consider appropriate measures.
The third measure that Kezia Dugdale described was credit unions. We all support credit unions, and Anne McTaggart made a helpful speech about the work that she has done in that area. Other members in the debate mentioned the hugely important role that those organisations play. Credit unions’ problem is that they are not as accessible as the payday loan shops. Many of them operate successfully, but they have a far lower public profile. It would be inappropriate for me to mention them, but we all know the ones that do extremely well, are visible and help a great many people.
Will the minister outline how the Scottish Government will help to promote smaller credit unions in areas that desperately need that facility but do not already have it?
We will certainly continue to promote, and advise people to consult, local credit unions. We will also contribute to public information, press publicity and campaigning. I hope that we will all do that jointly.
The debate has been useful, by and large; there has been a measure of agreement. I hope that Parliament will unite—or substantially unite—this evening on the way ahead.
I wish that we had the power in this Parliament to tackle the whole problem. If we had that power, there would be a consensus to use it, after careful thought, to regulate payday loans in a way that they are not regulated at present. I believe that strongly and profoundly, and I urge Parliament to adopt that view when we come to the vote this evening.
16:50
I, too, welcome many of the speeches in the debate. Opposition day debates are usually more combative affairs—if I may put it that way—but it is clear that there has been a strong measure of agreement in all the speeches across the chamber on the extent of the problem, if not on what we can do about it.
Many members asked how many Scottish families are struggling to make it to the end of January. How many who were already stretching to make ends meet were pushed to the edge of financial breakdown by Christmas? Some people will have received their salaries one or two weeks early in December, which will have left them with six weeks without income, until the end of January. For others, the rise in gas, electricity and petrol prices will have been the final straw.
Just this week, we have heard about the increasing number of families who are being forced to rely on credit cards to pay for the essentials of living. Today’s Herald front page talks about families dipping into their savings to put food on the table, to take kids to school and to meet mortgage payments. How many more have been driven not out of choice but out of necessity into the avaricious arms of payday lenders? How many more are cutting back on the essentials of food, heating and housing to pay off those exorbitantly expensive short-term loans? As my colleague Rhoda Grant said, that is the alarming reality for many families.
The struggle with debt is not a new problem. I do not want us to move away from the here and now, but many of us were educated and brought up with the works of people such as Charles Dickens and are familiar with the difficulty, misery, hardship and humiliation of debt. Two hundred years after his birth, and with wealth all around us in this country, why are we still talking about debt in such terms? Even more worrying, why is the problem getting worse?
I do not wish to make personal comments about the speeches by Alex Johnstone or Jamie McGrigor, but I feel that the Tories were in denial in the debate. They might not think that a problem exists, but I point out that Wonga—one of the most notorious payday lenders—although it made a loss of £1.9 million in 2007, has provided a total of 6 million payday loans in the UK up to 2012 and has made profits of more than £45 million. The problem is growing and getting worse, and we need to address it.
Many speeches have helped to describe the scale of the problem. I pay tribute to my colleague Kezia Dugdale, who not only painted a vivid picture of the problems and the hardship for families, but came up with a number of constructive suggestions about what we can do about that.
The most recent research from Shelter, which was published earlier this month, revealed that one in five Scottish families is struggling with their housing costs. More worrying is the fact that the number who are resorting to expensive payday loans to cover rent or mortgages has risen to 3 per cent of the population. Those figures are very much in line with figures in other studies of personal debt in this country.
It is becoming increasingly clear that we need to take action at all levels of government now. The recession, increased unemployment levels, frozen wages and more people moving into part-time working have affected household incomes. In the most recent year for which figures are available, the average household income in Scotland had declined by £1,200. If we add to the rising cost of living exorbitant rises in fuel prices, we can see why people are driven to despair.
What appears to be turning those difficulties into what most of us agree is a payday loans scandal is the lack of affordable borrowing, whether it is because of the withdrawal of credit facilities or the tightening of credit from more mainstream institutions. One of the most detailed analyses of the problems has been provided by R3, which is the trade body for insolvency practitioners. R3’s “Personal Debt Snapshot” reveals that the most important reason for resorting to a payday loan is to pay off other debt—particularly credit card loans. People who are already struggling with debt are being sucked into a downward spiral of relying on short-term borrowing with ever-increasing and extortionate repayment levels. As the minister recognised, recovering from that spiral is very difficult.
I agree with much of what the minister said. However, I want to pick up on two remarks. It was helpful to identify who is suffering, but unfortunately, the minister talked about people in bookies sometimes resorting to loans. Also, John Mason—in an otherwise quite useful speech—talked about the most vulnerable people being those who are furthest away from access to the internet. That is not a particularly helpful way of looking at the problem, because it implies either a degree of vulnerability or—in the case of the minister’s remark—a hint of feckless or irresponsible behaviour. However, the vast majority of those people are not the poorest of the poor; we are talking about people who are working, who nearly always have a home and a mortgage, who certainly have a bank account and who nearly all have an income of sorts.
The minister was right that there is a generational split. In fact, although the minister said that more men take up payday loans, more women are worried about debt. There is also a generational split in respect of who is worried about debt. Younger people—the 25 to 45-year-olds—are most worried about debt; three quarters of them are anxious about their current debt, compared with only a third of people who are retired. It is younger people who are turning to payday loans to “rescue” them from their difficulties.
Kezia Dugdale also highlighted particularly well the fact that the situation could be about to get much worse. The welfare benefits changes that are coming through seem almost to have been designed to exacerbate the situation. Tens of thousands of Scots who have not had bank accounts and who therefore could not previously access payday loans, are being forced to open bank accounts. With a similarly enforced move to monthly budgeting they will, as Kezia Dugdale said, instead of getting paid their benefits two weeks ahead be paid them four weeks behind.
It is widely predicted that many families will find themselves with even more acute short-term cash-flow problems. Yesterday, my colleague Malcolm Chisholm commented that it is the hallmark of a civilised society that we look after the most vulnerable people. I believe that most of us in this chamber would agree with that comment, but in my darker moments I sometimes worry that the hallmark of our supposedly sophisticated society is that we find ever more ingenious ways of extorting money from the people who can least afford it. That is what payday loan companies are doing.
I simply do not accept the arguments that payday loan companies are operating legally, that they are meeting a need, that financial regulation is reserved to Westminster and that is the end of the matter. The very fact that the market in payday loans has increased fourfold in as many years and now runs into billions of pounds should set alarm bells ringing at every level of Government. Those companies are making millions out of human misery and we are not mere spectators watching from the sidelines. Particularly helpful—certainly from my Labour colleagues’ contributions—are the number of positive actions that have been identified. They are actions that we can take now and that will make a difference.
I say just to make it clear to members on the SNP back benches that we agree that Westminster should take action and we agree with capping interest rates and with limiting roll-over of such loans, and we particularly support the work of Stella Creasy and others in Westminster. However, it is not simply a matter for Westminster to deal with. In fact, among all the calls for powers to be brought to this Parliament to deal with the issue, my understanding of the nationalist position on independence is that financial regulation would remain with Westminster. Perhaps the SNP would like to clarify that point, because that is my understanding.
I am happy to clarify that the SNP wishes those powers to be transferred to this Parliament. I will just make a plea to Ken Macintosh. Would he be willing to work with us in order to secure—now or within a short time—the transfer of powers to implement the measures that he himself said a moment ago he wishes to support and to see implemented, in order to solve the problem and to regulate payday loans in the way that he has just described?
The minister may wish to talk to the leader of his party, who is sitting on his right, just to clarify where the SNP stands on the transfer of fiscal responsibility. My understanding is that financial regulation will remain with Westminster under the new plans. The point is that that is an excuse for inaction, rather than a reason for inaction.
We have identified so many possible activities today. Members have been united in their agreement about the role of credit unions. The minister has identified a £6 million export guarantee enterprise growth fund. I ask the minister why he will not use some of that fund to support credit unions. So far, not one of them has made a successful application. We could set up a loan guarantee fund to expand the work of credit unions. It would be expensive; it would cost money, but we would be willing to work with the Government to find ways to fund that.
The Government could take so many actions on this matter. For example, Stuart McMillan talked about what the Government could do and then highlighted the good example of Dundee City Council’s not allowing access to payday loan company websites on its computers. We can stop the mis-selling of payday loans, use trading standards and tackle wealth difficulties using the same type of action that we take to tackle health difficulties. The Government has the power and the social advertising budget and we would be willing to work with it.
We will support the SNP’s amendment because we believe that there is consensus in the chamber and are happy to work with it to find a way forward. I look forward to the minister’s announcement next week and urge members to support the motion in my colleague’s name.
That concludes the debate on the cost of living.