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Alistair Burt (North-East Bedfordshire) (Con):
I am following the hon. Gentleman's argument carefully.
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I, too, share the concern about the difficulty of setting the rate, for all the reasons that have been discussed. The danger, given that so many things have to be taken into account, would be that the level would be set so high that it would be practically meaningless. Does the hon. Gentleman have any proposals for parliamentary scrutiny of the rate, so that there would be a mechanism other than just the Office of Fair Trading, perhaps influenced by the Government? That way, someone else could have some input into whether the rate chosen had any bearing on real life outside.
Malcolm Bruce: I must confess that my proposals do not address that, although the issue is related to a comment that I made in an intervention on the hon. Member for Tewkesbury (Mr. Robertson). I have reservations about the OFT. We need to ask, "Quis custodiet ipsos custodes?" Who ensures that the OFT is trading or operating fairly? I take the point that the hon. Member for North-East Bedfordshire (Alistair Burt) made and I think that mechanisms are necessary. For instance, the Treasury Committee has done a good job and there may be other mechanisms. All I have done with my new clauses is try to give direction to the OFT, so that it does its job more effectively than it has in the past.
My point, which I hope I have explained clearly, is that I agree that there ought to be a recognition of what are excessive and extortionate interest rates at any given time, and that the unfairness test can be applied to them. However, the only point of disagreement is on quoting a particular rate in the Bill, which denies flexibility and judgment over time, given the development of the market and different products.
Chris Bryant: The honest truth is that the vast majority of people in the country would think it unfair that poor people have to pay higher interest rates than rich people, which is one of the great injustices of life. The hon. Gentleman referred to doorstep lending, but perhaps he would care to be a bit more careful about that concept. In theory, of course, the law does not allow it, although we all know that it happens, especially in certain areas, not least in my constituency. My worry is that if the maximum interest rate were set too low, more people would be pushed into doorstep selling, which, because it is illegal and outside regulation, is a greater danger.
Malcolm Bruce: I completely agree, and I have made that point on a number of occasions. I should, however, point out that "doorstep lending" was not my term but the Sunday Mirror's term. I would prefer to talk about doorstep collection, which is an established and reputable aspect of the credit market. It is true, in every sense of fairness, that
"For whosoever hath, to him shall be given . . . but whosoever hath not, from him shall be taken away"—
although to an ex-cleric, I do not need to quote that. Nevertheless, that is the case, and it is even true of the tax system, which falls, proportionately, more heavily on those on lower incomes than it does on those on higher incomes.
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We are trying to achieve a degree of justice. However, as I think the hon. Gentleman said in his speech, the legitimate justification for higher interest rates is sometimes that institutions are offering short-term unsecured finance to people of dubious means, and are therefore likely to suffer substantial defaults, so they build that into the calculation. As long as both parties understand that, there can be a fair and agreed bargain. There is a danger, as has rightly been said, that those arrangements could be excluded, which would drive people to the criminal underworld, where drug barons and the like try to recycle the money from their drugs and other things. That would be completely the opposite of what the Bill is trying to achieve, and not what any of us wishes to happen.
I hope that I have explained the logic of my new clauses. I do not claim that they are perfect and I have no intention of forcing them to a vote, but I believe that they are a constructive contribution to the debate. I hope that the Government will make positive noises in response to them—or better still, take them away and improve on them. However, the Government should certainly give guidance to the OFT along similar lines, as we are looking to it, with some trepidation, to operate the provisions in a way that applies not only the letter of the law, but the spirit of the debate on the Bill.
Mr. Laurence Robertson: This has been an interesting debate and it reflects well on the House that we can have such a well informed debate, even when we hold different opinions.
It is important that we discuss the issue, because even if we do not agree with what is proposed, the debate sends a message to the industry that it needs to deal with people fairly and compassionately. We all know that those who can least afford the higher interest rates are those most likely to have to pay them, which is a good reason to discuss the issue.
Another good reason is that personal debt in increasing. Only this morning in The Times business section, there was a report on HBOS, which has announced that the value of its unsecured loans where borrowers are three months or more in arrears last year rose by more than 20 per cent., from £1.4 billion to £1.7 billion. That is a tremendous amount of money. HBOS figures also referred to borrowers with secured loans totalling £952 million being three months or more in arrears, which was an increase of 100 per cent. in the past year. So debt and arrears are increasing. The reason for that is not necessarily the rate of interest that those people pay, but the point is relevant to this debate.
Although the Bill is well intentioned and contains much that is good, there is a feeling that it lacks the teeth to address the issues that concern us. Although we accept that, as I am sure the Minister will say, such matters are covered by the unfairness test, which we support, we are concerned that we do not yet know what unfair means in that context. However, I shall return to that issue on a later amendment. There is a need for clarity on how we will address the problem of indebtedness, particularly among those who can least afford it.
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There are nevertheless a number of reasons, some of which have already been raised, why I cannot agree that having the Minister set the maximum level of interest rates is the way forward. One of the most important points, which has been mentioned, is that the rate of interest is not the only thing that matters. There are of course difficulties with agreeing on what that maximum rate should be. Indeed, as the hon. Member for Rhondda (Chris Bryant) said, if a maximum rate were set, lenders might be inclined to increase their standard rates to nearer the maximum than otherwise.
The point, however, is that the interest rate is not the only thing that matters. The charges that often go with loans are what count. The ability, legal or not, of lenders to write letters when people have missed payments and charge them £25, £40 or whatever for the privilege of doing so is unfair. That adds to the cost of the loan. The interest rate is only one part, although it is of course an important part.
We must also take into account companies that collect money on the doorstep—the hon. Member for Gordon (Malcolm Bruce) referred to that, rather than companies that lend on the doorstep—which can often provide a more flexible approach. Although the interest rates of those companies might be higher than what is found through the ordinary way of borrowing money, they may offer a more flexible service. They know their customers and can sometimes tell them that if they cannot pay one week, they can pay twice the next week. I accept that that can lead to problems, but the difficulty is not crucial when we are talking about amounts of only £5 a week, for example. To take away the flexibility to benefit customers simply because the interest rate charged is higher than normal would be to miss the real problem.
My main reason for opposing setting maximum rates of interest is that I do not consider that to be the Government's job. We must strike a balance between protecting consumers and making it impossible for people to get a loan or credit, even if they have to pay a bit more money. I believe in the free market. I accept that we have to regulate sometimes, but we must not over-regulate and allow the Government to interfere in every aspect of people's lives. The British people have a good deal of common sense, and we must allow them to borrow money at the rates that they deem acceptable.
Questions have been raised about the transparency of interest rates, and to some extent that problem has been addressed by a statutory instrument. Much remains to be done in that regard, however, and I accept that we must protect vulnerable people, as lack of choice means that they are more likely to borrow at higher rates of interest than the rest of us.
That said, we must leave the determination of interest rates charged on credit transactions to those who want to borrow and those who want to lend. I recognise that this matter needed to be debated, and those who tabled the new clauses have done so very competently. However, for the reasons that I have given, I cannot recommend to Conservative Members that they should support the new clause.
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