Tag Archives: payday loans

Why I can’t sanction sanctions

Emergency use onlyWhat happens to people who get their benefits stopped? Have you ever actually sat down and thought about what really happens? Or are the consequences unfortunate but unavoidable, so you don’t think about them? After all, sanctions are a justifiable way of making sure people aren’t defrauding the system, right?

Well, no. Benefit fraud is a different thing altogether and involves court cases, paying the money back and going to prison. Just over a year ago I was giving debt advice to a couple with young children who were sentenced to prison the week before Christmas.

Let’s look at what I’m really talking about. What bothers me is the growing gap in the numbers between people in work and people claiming unemployment benefit – known these days as job seekers allowance (JSA).

Not everyone who doesn’t work claims JSA. Some people are too unwell to work and they (should) receive a different allowance. Other people live in households which have other income and aren’t entitled to JSA. In theory, in an ideal world, this should cover everyone.

Recently, the number of people in work has been rising. We can have a debate about the quality of these jobs, and employment versus self-employment, but that’s for another day. However, government figures show the number of people receiving JSA has been falling faster than the number of people in work has been rising. It’s perfectly clear that they haven’t all started claiming the allowance for those too unwell for work as the furore over changes to this benefit shows. And neither you nor I believe they’ve all moved into households with other income.

No, people are no longer counted as claiming JSA because they have had their allowance stopped. And here is the key phrase I read on a discussion thread, and which continues to buzz round my head – “people are no longer counted”. These people don’t count any more – they’re off the JSA figures – who cares if they’re actually working or not.

So – what actually happens when your income disappears. It usually happens without notice. Most people will tell you they went to collect their money as usual to find it was not there, with no other warning. A sanction can last four weeks or eight weeks, but can be as long as 26 weeks or 104 weeks. Yes, that’s right – 104 weeks – that’s two years, a nice piece of government obfuscation there.

Now, let’s remember this is happening to people, not just numbers. What do you do when suddenly you have not money? You can’t put any more money on your gas or electricity meter – many people without a wage coming in have to use pre-pay meters. Let’s hope the weather is warm. You won’t be able to switch on the oven, but then again, chances are you don’t have any money to buy food. And if it goes on too long, you might not even have a cooker if you’d “bought” it from somewhere like Brighthouse and are paying back in instalments because you could never get that sort of money together up front. Keep the doors and windows locked so the bailiffs can’t get in.

You can’t top up your phone, so you can’t call anyone to see what’s gone wrong or how to put it right, and you don’t have the bus fare to go into town to sort it out. Your rent should still be paid by housing benefit, but this is often incorrectly stopped as well*. Then there’s water rates, TV licence, bedroom tax and council tax, all unpaid and stacking up arrears, penalties and further potential visits from bailiffs.

So what can you do? You could borrow from family and friends, if they’ve got anything they can lend you. But this can only be a temporary fix and will have to be paid back for the sake of family harmony. Likewise, you could go to a foodbank, but again, this is only a short-term solution if your sanction is a long one, and you’ll have to say no to the fresh veg they sometimes offer because you’ve nothing spare to put on the meter for the hob. You could try a payday lender (if you aren’t already struggling with previous loans). You’ll probably get one, but it’s hardly a good solution because even when/if your money is restored, there’s nothing spare to make the repayments anyway. Mind you, it’s an option more and more of us are turning too and personal credit in the UK continues to rocket. You could try a doorstep lender like Provident – at least they accept repayments in smaller amounts, but these seem to go on forever. But better than an illegal lender, a though which has crossed your mind. A Credit Union loan would be a better option, but (as yet) these aren’t available soon enough – you’ll need to be a saver for several weeks first in most cases.

If only there were hardship payments available to tied you over until the end of the sanction period – as least to put money on the meter and food on the table. What? You mean there are such payments? Why did no-one tell me about them?** Meanwhile, we’re all hungry and the last resort might be shoplifting, just so there’s something to feed the kids when they get home from school tonight.

 

After I wrote this blog but before I posted it, I read this article, which echoes some of my themes above and shows that sanctions don’t help people back into work anyway. Who’d’ve thought?

* see the Emergency Use Only report (pictured), p116

** see the Emergency Use Only report, p42 and p111

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Fair Pay Fortnight

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In a twist of irony, I was invited to attend a working lunch last Friday – the day I was participating in the End Hunger Fast. Even more appropriately, the lunch was part of the TUC’s Fair Pay Fortnight on the subject of low pay and payday lending, so it seemed right to go while I was fasting in order to campaign on the same issues! As well as the regional TUC and a representative from USDAW, Paul Blomfield, the local Sheffield MP, was one of the speakers.

Some interesting facts and figures were presented on the day. Low pay in the region means that workers in Yorkshire and Humberside earn £38 per week less than the national average, while 20% of people in Sheffield earn less than the Living Wage, a wage which is considered to be the minimum needed for an acceptable standard of living. No wonder The Joseph Rowntree Foundation found that more people living in poverty are working than are not.

This is a climate where high-cost lending flourishes. We were told that Wonga makes 10,400 loans every day, a figure which has risen by 70% in the last year. Wonga can make £1.2 million profit every week even though 2/5 of borrowers struggle to repay loans. In fact, people who default and roll-over their loan to the following month make more money for the lenders than those who repay on time. Additional interest, fees and default charges are where the money is, adding up to a perverse business model where the target market is those who can’t quite afford to pay.

The proliferation of payday lenders is a symptom of the wider economic climate. Over time since the 1980s there has been a shift of 8% in the make-up of GDP away from wages towards profits (and thereby dividends). The cost of living crisis is as much about falling wages as it is about rising prices. Wages have been frozen, jobs have changed from full-time to part-time, from secure to insecure, and the minimum wage has become the default norm instead of the safety net minimum (and has fallen in value as well).

This was all very interesting. But the best thing about the meeting was the chance to talk to other people in the room about our past experiences and ideas to make changes in the future. And then, the convenor of the meeting took our ideas and formulated them into a plan of action. So refreshing to move from words to actually doing something about it!

There needs to be some fleshing out of the ideas but four strands of action were suggested. Firstly to work alongside the local credit union to promote it, and encourage people from all walks of life so save and borrow with it. Secondly to launch a campaign against advertising by payday lenders, to stop advertising to children and to regulate advertisements in a similar way to how gambling adverts are regulated. Thirdly the TUC would undertake some research to find out which local businesses pay a Living Wage, so people can make an informed choice about where their money goes. And finally, to encourage people to belong to unions, as this improves their pay-bargaining strength. I hope it doesn’t take too long before a way to get involved in these actions gets back to me. In the meantime, I’m going to find out if Sheffield Diocese is a Living Wage employer.

Close the Gap

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After my last post about Kate Pickett’s lecture on the Spirit Level, Liam Purcell from Church Action on Poverty told me that their current campaign to Close the Gap was inspired by this research. I’ve been following and supporting this campaign, so I thought I would write a piece all about it.

The Spirit Level investigates how the relationship between a country’s economic growth and the health and wellbeing of its citizens breaks down once a country reaches a certain level of income. The UK has reached this level – until the recession the UK was getting richer but not healthier or happier. Other things were making a difference, and the Spirit Level research demonstrates that differences in income inequality between countries can account for differences in health and wellbeing. Not only this, but reducing income inequality brings benefits not only for the poorest people in a society, but for every sector of the population.

Church Action on Poverty is campaigning to Close the Gap between rich and poor. This would not only transform the lives of those on the lowest incomes, people who Church Action on Poverty works with on a regular basis, but would also make our whole society fairer, happier, healthier and safer. The campaign focuses on four areas: fair taxes, fair pay, fair prices and fair say.

Fair Taxes

Anyone who knows me IRL knows I’ve been campaigning with Church Action on Poverty and Christian Aid on tax since the tax bus came to town! We’ve all been pretty annoyed that Starbucks, Google and Amazon, to name but a few, seem to be able to operate and make profits in this country without paying their fair contribution to the infrastructure which makes their operations possible. Christian Aid also offers a perspective from poorer countries. If we need company taxes to help our economy, how much more important are they in countries with smaller incomes and bigger needs? Tax was a key part of the recent IF campaign, calling for the closure of tax havens loopholes, disclosure of information between tax jurisdictions, and a public register of who really owns companies (beneficial ownership) so money can’t be hidden and citizens can hold businesses to account. We have really put tax on the table, and just in the last few days, the Prime Minister announced that the UK would publish a register of beneficial ownership and that this register would be public and not just for the tax office. Now Europe and the US needs to follow suit.

More needs to be done to close loopholes and tax havens, and Church Action on Poverty is asking for a re-think on tax. It is part of belonging together to contribute to the welfare of all. This is true for businesses and individuals, and we need to build a fair and transparent taxation system that reflects this attitude. If you want to see more about how the UK is still hiding money and how companies in the City of London are not paying their fair share, come and see the film The UK Gold, being screened in Liverpool on 21st November 2013.

Fair Pay

Did you know that this week is Living Wage week? Do you even know what a Living Wage is? It is calculated independently of governments in this country by the Joseph Rowntree Foundation (yes, originally the chocolate guy) and is the hourly rate someone working full-time would need to be paid in order to reach what the public considers to be an acceptable standard of living. At £7.65 an hour (£8.80 in London) it is considerably more than the minimum wage of £6.31 (no London rate).

Those who criticise the Living Wage suggest that it would be too expensive to implement and would put people out of business. The first thing response is to remind people that the Living Wage is voluntary and functions as a standard to aspire to. But in case you think that is a cop out, from the reading I’ve done, those organisations which have implemented it have found that improvements in productivity and reductions in sick pay have more than outweighed the cost. I guess it depends how low your starting point is, but the same argument was raised when the minimum wage was introduced, and there was no corresponding increase in businesses going to the wall.

In fact, introducing a Living Wage looks like it would actually save the government money. A new report from think tanks IPPR and the Resolution Foundation suggests that paying everyone at least the living wage would save the government £2.2 billion a year because of a reduction of in-work benefits and an increase in tax and NI contributions, even taking into account the fact that it would be spending more on paying public sector workers. This is something that has vexed me for a while. The Government is effectively subsidising industries which pay low wages, which includes in particular retail and care. There are plenty businesses in these sectors making handsome profits. By topping up low pay, the Government makes low pay a sustainable option and allows it to continue, while supermarkets (for example) continue to rake it in. The solution is not to cut in-work benefits but improve pay, as is beautifully described in this article by Polly Toynbee. She also says “For the long term, power needs to flow back towards the utterly powerless employee. A German-style seat on the board, as well as on the remuneration committee, helps contain top greed…Companies should be obliged to publish their pay ratios, from top to bottom.”

This is the second strand of Church Action on Poverty’s fair pay demand. We need to question whether huge salaries paid to anyone are justified or acceptable. It is not just a question of whether someone is worth it, but rather is it fair or just that in our society there is such discrepancy in pay. There needs to be a shift in attitudes so that pay ratios between the highest and lowest paid workers of 100:1 or even 200:1 are no longer acceptable.

Fair prices

Working with people on low incomes as a debt adviser has really opened my eyes to just how expensive it is to be poor. My dual fuel, pay by direct debit, paperless billing discounts are not available to someone who has to use a pre-pay gas or electricity meter because they are having difficulty meeting their bills. The weekly shop is also much more expensive if you have no transport to the big out-of-town supermarket and have to rely on local shops. Even the buy two get one free offers are out of reach on a low income, never mind carrying all that extra stuff home on the bus!

Another big issue is the cost of credit, significantly more if you are on a low income, and harder to obtain. This is why door-step lenders, payday loan companies and hire-purchase businesses are thriving, because if there’s nowhere else to borrow money and your washing machine has packed in, what else are you going to do? The cost of borrowing like this is astronomical, there is no limit on the fees and charges added on by lenders, and very little checking up on whether a borrower has the ability to repay. If you get behind with your repayments, or “roll-over” your loan for another month, the debts very quickly mount up and become unmanageable and unpayable.

Church Action on Poverty is calling on businesses to stop charging premium rates to their poorest customers and instead introduce social tariffs. United Utilities, water providers in the north west, already do this, and it is an enormous help to some of the people who have come for debt advice. Church Action on Poverty is also calling for a cap on the overall charges which can be levied by lending companies. Regulation for payday lenders is being discussed right now, so if you want to add your voice to calls for fairer lending, you can sign this petition.

Fair Say

How easy it has been for society to slowly but definitely increase the gap between rich and poor, and make life more and more difficult for those at the bottom of the heap. It is easy because those at the bottom lack power. Those with the money not only have power over business and policy decisions, but also over what you get to hear about, what gets discussed in the media, and the way we think about those who have not. Church Action on Poverty works with poor communities, not just to alleviate their needs, but also to give them a voice, to be able to advocate for themselves and bring about their own transformation.

I know I sound like an old-school leftie, battling against the hegemony of the establishment, as if we were lost in 1984 (the novel not the year) with the thought police. But I challenge you to read that report I mentioned in the last post – Poverty: Truth and Lies. And when you’ve read it, then tell me that those in power are not controlling the discourse.

Archbishop of Canterbury, Wonga and Credit Unions

The Archbishop of Canterbury, Justin Welby, has created quite a stir with his comments about payday loan company Wonga.  This is my attempt to process my positive feelings about the fact that he has spoken out about this issue, alongside other feelings of discomfort about what he said.

I agree with the Archbishop when he says that we are not aiming to “legislate” Wonga out of business. Some kind of outright ban on companies like this is not a helpful solution. For people on the most precarious of incomes, this kind of credit is often the only credit they can get. And while it might be nice to suggest that people should save up for the things that they need, unexpected outlays (such as fixing a broken down boiler), by definition, cannot be planned for, even if saving were possible.

This does not rule out some legislation which would be helpful.  Church Action on Poverty, along with MP Stella Creasy, have long campaigned for a cap on interests rates and charges and greater transparency when loans are agreed, as well as data-sharing between companies so that people can improve their credit rating and access to mainstream credit.

So while people need alternative means of borrowing money, it is great to hear the Archbishop argue that we need to expand Credit Unions, and offer the Church of England as a resource for this. And it’s clear that this is not going to happen overnight, so while Credit Unions are growing, we should continue to campaign to make payday loans better for the people who use them. For me, the worst thing about these type of lenders is the way advertise themselves. I loathe the new Wonga adverts, which normalise and sanitise a way of borrowing money which could be considered extortion. But worse is the way that people are bombarded with offers of money over and over again, without any clear explanation of what it will cost to repay.

So what’s my problem? I agree we shouldn’t ban Wonga and its like, although I think some legislation would be helpful. I agree that we should expand Credit Unions and think the church is a great resource to help do this. I think my problem is with the word “compete”. This leaves the debate firmly in the transactional frame. Yes, I know we are talking about money and debt, but the debate could be framed in terms of people instead.

Competing with payday lenders legitimises their business and puts the Church of England and Credit Unions in the marketplace. While this is a fair description of the situation on the surface, it does not deal with why the Archbishop got involved. Clearly it is not because he thinks the Church of England should be making money in this market. Rather, the church sees that people are in need, and they are suffering because of their indebtedness to payday lenders or lack of borrowing options. Churches up and down the country see this need on a daily basis, and their call to show the love of God demands that action is taken. It is not enough to feed needy people through Foodbanks, but there must be a call to change the structures that cause people to need this help in the first place. I believe the church is called, not to compete with Wonga, but show a radical alternative. To show love, and in doing so, to change the rules, to treat people with fairness and equality, and not as people whose needs make them easy to exploit. In short, I think the church should love (other people and so put) Wonga out of business.