Jeff Salway: Osborne top of pay-day lenders’ Christmas list
For pay-day lenders, George Osborne truly is the gift that keeps on giving.
If the Budget could be sponsored it should have been brought to you by Wonga. It already sponsors Hearts and Newcastle United; under Osborne the Budget has had a similarly tragi-comic feel to it.
Pay-day lenders are already cashing in on the financial hardship caused by the squeeze on the poorest in society and they’re licking their lips in greedy anticipation of the next round of welfare reforms.
Osborne continues to play into their hands. The Chancellor wants you to borrow more and couldn’t care less if you can’t save money. He’s giving you a tax break if you’re among the richest but turning the screw if you’re disabled or desperately trying to find a job.
He’s spent the past three years claiming that the previous government’s borrowing habit left the economy in a mess from which it can’t be extricated.
That argument has been widely accepted, despite hard evidence showing that Osborne inherited a steadily improving economy.
The Chancellor has even continued to trot out that nonsensical comparison between the country’s finances and a household budget, summing up his economic illiteracy.
Yet confronted with a triple-dip recession, Osborne turns to borrowing. Or, more to the point, he wants us to borrow, this time to buy new homes. Unfortunately the flagship help-to-buy policy may produce the one result that first-time buyers fear most – higher house prices.
And how are first-time buyers supposed to accrue the hefty deposits they need? By saving. But that is not something that Osborne is interested in encouraging.
Help-to-buy isn’t the only government-backed scheme supporting the housing market. There’s also the funding for lending scheme (FLS) which, by giving lenders access to cheaper borrowing, reduces their need for savings deposits. Interest rates on savings have plunged, delivering yet another blow for savers already struggling to find cash accounts beating inflation.
The Budget also prepared the ground for fresh quantitative easing, which has driven down gilt yields and sent annuity rates in the same direction.
That’s proved disastrous for newly retired pensioners who are also getting little or no income from their savings. They’re also hit by the freeze in the age-related personal allowance, better known as the “granny tax”.
With savings pots shrinking fewer households have a cash buffer against hard times. Those hard times will become harder next month, as the benefit cap, the bedroom tax and other belt- tightening measures take effect.
In last week’s Smart Money, charities including StepChange and Citizens Advice Scotland warned that those measures will send more people into the arms of pay-day lenders and subsequently even deeper into debt. They hoped the Budget would offer some respite, but they knew that none would be forthcoming. It was another victory for the pay-day loan industry.
The bizarre idea to impose a levy on bank deposits in Cyprus – and no one will admit to coming up with that doomed plan – seriously undermines public confidence in the safety of ordinary savings and deposits.
The Northern Rock run in September 2007 showed us what can happen if people believe there’s any threat – real or perceived – to the money they hold in a bank or building society. The panic underlined the flaws in, and low awareness of, the Financial Services Compensation Scheme (FSCS).
At the time it only guaranteed to repay the first £2,000 on deposit and 90 per cent of the next £33,000 in the event of the provider going bust. Some £2 billion withdrawn from Northern Rock later, that was clearly insufficient reassurance.
Now up to £85,000 of deposits per person, per regulated institution is covered by the scheme, doubling to £170,000 for joint accounts.
Yet there’s room for improvement. While some banks under one institutional roof have separate regulatory licences, others are covered by the licence of the owner. So while Royal Bank of Scotland and NatWest have separate licences, Bank of Scotland and Halifax – both owned by Lloyds Banking Group – do not.
So if you’ve got more than £85,000 held in accounts in Bank of Scotland and Halifax – not to mention AA, Saga and Intelligent Finance – only the first £85,000 would be protected as the brands come under the Bank of Scotland licence. (For more details of FSCS cover by bank, go to www.fsa.gov.uk/consumerinformation/compensation/brands)
It’s a robust system but lacks the clarity that’s needed to underpin confidence.
We’ve come a long way since Northern Rock, but if people don’t know exactly how their money is protected there remains a great risk of another catastrophic bank run.
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Weather for Edinburgh
Sunday 19 May 2013
Temperature: 9 C to 17 C
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Temperature: 10 C to 20 C
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Wind direction: North east