Labour leader Ed Miliband declares tax war on payday lenders

The lending companies would fund credit unions under a Labour government

The Labour leader will pledge that his party would act to help prevent people falling into unpayable debt (Getty Images)

Payday lending companies would be hit by higher taxes under a Labour government, with the money raised used to build up their credit union rivals, party leader Ed Miliband will announce today.

Labour would raise about £20m a year from controversial lenders such as Wonga – either from a 1 per cent levy on their balance sheet or a 10 per cent profits tax.

The revenue would double the £13m a year currently provided by the Government to expand credit unions, alternative non-profit groups which lend money with a maximum interest rate of 26 per cent annually.

Mr Miliband’s intervention will put pressure on the Coalition to rein in payday loan firms, amid mounting concern about their sky-high interest rates, sometimes of more than 5,000 per cent APR.

David Cameron insisted yesterday that the Government had not ruled out imposing a cap on the rates the companies can charge, but said such ceilings had not always worked in other countries.

Labour accused the Coalition of dragging its feet on a cap. If Mr Miliband wins power in 2015, he would bring in a maximum interest rate to prevent the lenders passing on Labour’s higher taxes to their hard-pressed customers.

He will extend his drive on Britain’s “cost of living crisis” by asking Stella Creasy to head a Labour campaign against loan sharks. The MP for Walthamstow, who has exposed problems caused by the lenders, was appointed shadow minister for competition and consumer affairs in his frontbench reshuffle last week.

Mr Miliband, who will meet “victims” of payday lenders with Ms Creasy today, will say: “The cost of living crisis afflicting millions of Britain’s families is so bad that it is creating a personal debt crisis too. The prices families have to pay keep on rising faster and faster than the wages they are paid. And, as a result, the market in payday lending has doubled in just four years.

“Almost a third of the payday loans taken out in Britain at the moment are to cover the cost of people’s gas and electricity bills.”

The Labour leader will pledge that his party would act to help prevent people falling into unpayable debt.

“We would cap the cost of credit, halt the spread of payday lenders on our high streets and force them to fund the credit unions that can offer a real alternative for people in desperate need,” he will add.

“We must protect the most vulnerable people in our society from the worst of exploitation by payday lenders. And it is right that the companies that benefit from people’s financial plight, accept their responsibilities to help ensure affordable credit is available.”

Ms Creasy will say: “We are determined to see a cap introduced in the UK so that we can see an end to this legal loan sharking and give consumers the protection they deserve.”

Labour’s proposals would leave the level of the cap to be decided by the Financial Conduct Authority. However, they would force payday lenders to pay higher levies than other financial companies to fund services for consumers such as debt advice.

The Archbishop of Canterbury, who has vowed to put companies like Wonga out of business, has written to all clergy in the Church of England urging them to become “actively involved” in supporting local credit unions. On the eve of International Credit Union Day, the Most Rev Justin Welby called on vicars to support “real” alternatives to payday loans, which he warned could plunge the one million families taking out loans every month into a crippling spiral of debt.

The Rev Malcolm Brown, director of the Church of England’s mission and public affairs division, said: “Credit unions aren’t just for hard-pressed communities – all sorts of people could use credit unions to save and to take out loans at manageable interest rates.”

Wonga insists it welcomes competition from credit unions, saying it favours consumer choice.

In the Commons yesterday, Labour MP Paul Blomfield urged Mr Cameron to back a new charter, drawn up by debt and consumer organisations, calling for tough regulation of payday lenders. The Prime Minister replied: “We are still considering the issue of a cap, and I do not think we should rule it out, although we must bear in mind what has been established in other countries, and by our own research, about whether a cap would prove effective.

“It is absolutely right for us to regulate this area properly.”

Mr Cameron dismissed Labour’s promise of a 20-month energy price freeze as a “price con”. He said the best way to address the cost of living was to give people money back through tax cuts. He also pleased Tory MPs by raising the prospect of tax cuts for middle-income earners in the long run. “I want to see tax cuts for all,” he said.

He was replying to Tory MP Dominic Raab, who asked: “As he pursues the Tory mission to take the low-paid out of tax, may I urge him to deliver it by cutting government spending so that we can also ease the squeeze on the middle classes?”and will announce today.

Labour would raise about £20m a year from controversial lenders such as Wonga – either from a 1 per cent levy on their balance sheet or a 10 per cent profits tax.

The revenue would double the £13m a year currently provided by the Government to expand credit unions, alternative non-profit groups which lend money with a maximum interest rate of 26 per cent annually.

Mr Miliband’s intervention will put pressure on the Coalition to rein in payday loan firms, amid mounting concern about their sky-high interest rates, sometimes of more than 5,000 per cent APR.

David Cameron insisted yesterday that the Government had not ruled out imposing a cap on the rates the companies can charge, but said such ceilings had not always worked in other countries.

Labour accused the Coalition of dragging its feet on a cap. If Mr Miliband wins power in 2015, he would bring in a maximum interest rate to prevent the lenders passing on Labour’s higher taxes to their hard-pressed customers.

He will extend his drive on Britain’s “cost of living crisis” by asking Stella Creasy to head a Labour campaign against loan sharks. The MP for Walthamstow, who has exposed problems caused by the lenders, was appointed shadow minister for competition and consumer affairs in his frontbench reshuffle last week.

Mr Miliband, who will meet “victims” of payday lenders with Ms Creasy today, will say: “The cost of living crisis afflicting millions of Britain’s