Labour to pledge help for millions trapped by credit card debt

Rowena Mason Deputy political editor
John McDonnell appears on ITV’s Peston On Sunday in Brighton. The shadow chancellor is planning new rules on credit card interest. Photograph: David/SilverHub/REX/Shutterstock

People trapped in a spiral of credit card debt would be protected by a cap on their interest payments under a Labour government, John McDonnell, the shadow chancellor, will say on Monday.

Speaking at the party’s annual conference in Brighton, McDonnell will announce plans to help the more than 3 million people in Britain who are paying far more in interest payments than they borrowed.

Under the proposals there would be a total cap, meaning people would not have to pay back more than twice the amount of their credit card borrowings.

Labour’s plan would bring the regulation of the credit card industry into line with rules on payday loan companies, which were subjected to these restrictions from 2015.

McDonnell said he was “calling upon the government to act now apply the same rules on payday loans to credit card debt”.

“It means that no one will ever pay more in interest than their original loan,” he will say. “If the Tories refuse to act, I can announce today that the next Labour government will amend the law.”

In a joking reference to leadership rules changes named after him, the shadow chancellor said: “Call it the McDonnell amendment.”

The policy is designed to appeal to consumers at a time when Labour is preparing for the possibility of another general election, with the Conservatives in turmoil over Brexit and their lack of a majority in parliament.

Labour’s policy comes amid deep political worry about the levels of debt being racked up by some of the most vulnerable consumers, which the Guardian has charted in a recent series about Britain’s £200bn of unsecured personal borrowing. According to the Money Advice Service, there are now 8.3 million people in the UK with problem debts.

The chairs of two parliamentary committees have this month urged the government to set up an independent public inquiry into the £200bn of debt amassed by households.

The call by Rachel Reeves, the Labour chair of the business select committee, and Frank Field, the Labour head of the work and pensions select committee, comes as the Conservative-led Treasury select committee also plans to hold meetings around the country to examine the impact of debt on individuals and households.

Andrew Bailey, the chief executive of the Financial Conduct Authority (FCA), said last week that he was concerned about the sheer number of people who need loans to make ends meet. He identified gig economy workers, who do not have guaranteed hours, as in special need of credit to smooth their incomes.

Consumer credit, which covers personal loans, credit cards and borrowing for cars, is rising at just under 10% a year, at a time when wages are falling at 0.4% a year, taking inflation into account. Eighty-six percent of cars are bought on personal contract purchase credit deals, which in effect leave borrowers leasing their vehicle. Meanwhile, nearly half of all borrowers on credit cards are on 0% interest rate offers.

The FCA is so concerned about people in credit card debt that it proposed new regulations in April that would place more obligations on companies to stop persistent debt spiralling. In July, it said it was cracking down on the high cost of overdrafts and reviewing the booming car loan market.

McDonnell will use his speech at the party conference to highlight the high number of people with persistent debt – those who have paid more in interest and charges than they have repaid of their borrowing over an 18-month period.

Among the 3 million people with persistent debt, the average amount on credit cards is £3,464 or about £14bn in total. They pay about £2.50 in interest and charges for every £1 borrowed, according to the FCA.

The shadow chancellor will also turn his fire on the Conservatives’ record on the economy, saying the last seven years have seen the slowest wage growth since Napoleonic times.

He will say Labour would take a different approach to the challenges of automation and industrial change by establishing a strategic investment board to fund new technologies.

“Huge changes are under way in our society and economy,” he will say. “Technological change is accelerating. This year Chinese scientists used quantum mechanics to teleport data to a satellite.

“But we can match that: we’ve got a government full of people teleported from the 18th century. While the Tories remain stuck in the language and values of the Victorian era, we are determined that Britain embraces the possibilities of technological change – scary though they may be.

“By the middle of this century it is possible that up to half of all the jobs we do now could be automated away.”

McDonnell will express an ambition to get rid of “exploitative, dangerous, degrading and dead-end” jobs and create only employment that is “fulfilling and meaningful, in communities where pride and prosperity has been restored”.

To achieve this, Labour would create a “new institutional framework” that makes better links between the financial system and the economy of research, development and production.

“The Strategic Investment Board will scrutinise and co-ordinate the delivery of essential funding out of the hands of the speculators and into the technologies and industries of the future,” he said.

“So to the technology sector, to the universities, to the researchers and the innovators we say: help is on the way.”

Liz Truss, the chief secretary to the Treasury, said on behalf of the government that Labour was “taking it too far” with its proposals. “We set up the Financial Conduct Authority which is ensuring credit card firms do more to help their customers clear debt and, from January, rip-off credit card charges will be outlawed,” she said.

“The best way to help people with their personal finances is with our
balanced approach to the economy, which is creating more well-paid
jobs and cutting taxes for working people.”

By using Yahoo you agree that Yahoo and partners may use Cookies for personalisation and other purposes