Philip Hammond has his sight on payday lenders and loan sharks. The UK government has plans to launch a no-interest loan scheme for low-income individuals in Britain. Hammond is expected to tackle the debt problem by establishing an alternative for the 3 million + individuals who rely on high-cost credit companies like the now-defunct Wonga.
Before the budget reading, Treasury revealed a plan by the UK government to partner with the banking industry and debt charities to help low-income earners in the UK cope with unexpected costs. The announcement puts pressure on Hammond to outline precisely how he intends to deal with the problem.
Theresa May has pledged an end to austerity in Britain answering calls from politicians across Britain to stop and fix Universal Credit welfare. According to Treasury, there is a study underway assessing the feasibility of having an interest-free loan scheme. The pilot study which is set to be launched in 2019 will assess how the scheme would work in Britain.
Australia has a similar scheme that has experienced widespread success helping 80% of borrowers to stop over-reliance on costly short-term debt. Individuals facing financial problems in Australia have access to interest-free loans (up to $1,500) and coupled with flexible repayment periods 12 to 18 months.
In 2017 alone, Good Shepard Microfinance – the organisation responsible for offering the Zero-interest loans in Australia offered 27,000+ loans nationally which represented a 15% increase from the previous year. A similar scheme in Britain would be good news to many households in Britain forced to take expensive short-term loans to cater for basic necessities.
According to a statement from Mr. Hammond’s department, such a scheme in the UK could offer over 3 million+ high-cost credit users an affordable alternative preventing individuals in financial distress from plunging into debt or in worst-case scenarios, turning to loan sharks.
Hammond’s plan to deal with payday lenders comes after payday loan giant Wonga notoriously known for charging its clients’ exorbitant interest rates collapsed prompting the Church of England to suggest a lasting solution. Wonga has charged its client’s interest above 5,000% before the FCA payday loan cap came into effect. The payday loan giant collapsed following countless claims of unfair lending practices in the past.
According to Treasury, Hammond is expected to publish proposals on the “breathing space” it will give people in debt such as some much-needed credit action protection. Hammond is expected to increase the time needed to work on a debt repayment solution from 6 weeks to 60 days.
Mr. McDonnell’s sentiments
According to Labour shadow chancellor, Mr. McDonnell, “breathing space” is another one of many policies taken from the Labour party’s 2017 manifesto. McDonnell feels more should be done to prevent people from falling into debt since the current proposed measures don’t cap excessive interest and other fees.
Mc Donnell proposes an extension on the payday loan lending rate cap to other loans like overdrafts and credit cards. He also proposes a £10 per hour minimum wage to help low-income individuals.
Martin Lewis’s take
In response to Hammond’s announcement, MoneySavingExpert.com founder Martin Lewis welcomed the news commending the British government for proposing an Australian-style system.
According to Martin Lewis, the British people have been at the mercy of payday loan lenders and exorbitant interest rates on short-term credit for too long. Lewis sees this as another win after Wonga’s demise. There has been a poor provision of affordable short term loans for many struggling Britons since the end of government social fund loans. Lewis’s only concern is the lengthy timelines that may delay the pilot.
During the announcement, Treasury also revealed Hammond’s £30 billion investment on England’s roads as part of the measures in the budget for boosting the country’s transport network. According to Treasury, the funding boost intended to pay for major new roads, motorway improvements and boost poor links, exceeds the amount of money provided for similar efforts during the past five years.
The chancellor is set to tell MPs he is setting up a £28.8 billion investment over five years (2020 to 2025) that will be partly funded using revenues collected from vehicle excise duty – the first time a road tax is being ring-fenced to finance road networks. This investment surpasses the £17.6 billion invested over a previous period representing a 40% increase in the Highways England budget.
Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.