It is nearly three hundred years since William Hog, an Edinburgh merchant, convinced his lenders of a way to stabilise his working capital. In May 1728, he succeeded in convincing the Royal Bank of Scotland that it would be prudent for him to temporarily take more money from his account than the amount he held in it. In doing so, he became the world’s first recipient of a cash credit, the forerunner of the modern overdraft.
In the centuries since, many other merchants have relied on the same facilities to meet the imbalance of payments received and payments made, an occupational hazard for any trader. But in 2016, the overdraft is for many ordinary people a survival mechanism that allows them to put food on the table and pay urgent household bills. Without it, they would be in a perilous financial state.
There is a caveat, of course. Lenders routinely charge fees for those who veer into their overdraft without the bank’s consent. The average cost, according to Moneyfacts, stands at £57.50 a month, meaning that if a customer were to go overdrawn every month, they could pay £690 a year, before interest.
Given some banks, such as Halifax, charge up to £100 a month, the cost could be even higher. Such figures are punitive and leave ordinary working households trapped in a vicious cycle, unable to eke out of their overdraft because of the fees they have to pay.
That is why a new study from the Competition and Markets Authority proposing caps to unarranged overdraft fees should be broadly welcomed. At first glance, requiring banks to impose an upper limit to these charges might seem anti-competitive. Those who are prudent with their money might also reasonably ask whether such a measure will encourage people to continue to spend money they don’t have.
These are, however, knee-jerk reactions that should be resisted. Anyone can face unexpected bills and the consequences can be ruinous if, for whatever reason, they have no rainy day fund on which to rely.
The figures detailed in the CMA’s study – the result of an 18 month inquiry – make it clear that many banks are charging way over the odds. Accusations that they are actively profiting from the hardship of their customers are not wide of the mark. The CMA estimates that UK banks made £1.2 billion from such charges in 2014. At a time when public mistrust of the financial sector remains rife, those kind of figures will only make the situation worse.
The consumer watchdog, Which?, argues that the CMA has not gone far enough, but the proposals it has put forward represent a sensible starting point. By setting their own monthly charge caps and publishing it for all to see, it would encourage competition and, hopefully, drive down costs.
The CMA’s recommendation that banks automatically sign up customers for text alerts warning they are about to go overdrawn should also be implemented. The technology exists. It is up to the banks to show, as they once did to Mr Hog, that they have the will.
Locomotive cannot return too soon
For the legions of enthusiasts who crowded on rail platforms and bridges to witness the Flying Scotsman’s spellbinding visit north of the Border at the weekend, the experience will live long in the memory.
After years of campaigning, fundraising and painstaking restoration work to the grand old locomotive, the sight of it careering into Fife, thick plumes of white smoke in its wake, called to mind a stanza or two from Robert Louis Stevenson’s From a Railway Carriage, which memorably depicted the steam machines of yesteryear charging through towns and countryside.
One line in that work is particularly poignant however, with Stevenson noting how the speed of the trains meant the view from its carriage was forever changing. “Each a glimpse and gone for ever!” he wrote.
No doubt the Flying Scotsman’s admirers might have felt the same after the weekend. Despite a last minute hitch on the part of Network Rail, the homecoming was a grand success, but it was a fleeting one.
That it is why everyone concerned should rally behind the tentative plans for the Flying Scotsman’s return to Scotland next year.
Organisers of this year’s sold-out trips are already looking at holding further excursions in Scotland for 2017. It is to be hoped the locomotive will come back to Edinburgh and the Borders. The prospect of it venturing all the way to Inverness is even more exciting, although logistically troublesome.
Whatever the itinerary, the celebratory scenes at the weekend testify to the immense appetite amongst the public to see a wondrous example of our industrial heritage in full flow.