Mr Marcus Jones (Nuneaton) (Con): May we have a debate on the community value that is derived when councils lease land and property to charities? Labour-controlled Nuneaton and Bedworth borough council is using what I would call a legal technicality and substantial

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amounts of taxpayers’ money to throw out a much-loved disabled riding charity from its home of 34 years, without any proper explanation to my constituents.

Mr Lansley: The House will appreciate that my hon. Friend is making an important point on behalf of his constituents. I know that they will appreciate that too. His borough council will no doubt hear what he has said in this House. It should reflect on the best value guidance issued by my right hon. Friend the Secretary of State for Communities and Local Government in 2011 and on the benefits that should be derived by communities from the way in which councils exercise their powers.

Barry Gardiner (Brent North) (Lab): May we have a debate on sound science and the implementation of Government policy? Many scientists in the environmental community have been concerned to find out that the badgers that are culled will not be examined to find out whether they had tuberculosis in the first place. Equally, they are concerned about the Government’s proposals to relieve local authorities of the obligation to monitor air quality at a time when we are facing severe and escalated infraction proceedings in the EU because we have failed to meet air quality standards. It looks as though the Government are not properly monitoring the implementation of their own policies.

Mr Lansley: The hon. Gentleman will be aware that my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs made a written statement on Monday, which set out the basis of the policy. He will also remember the debate of 5 June, when the House voted against an Opposition motion that the badger cull should not go ahead. I know that my right hon. Friend is basing his policy on the best possible scientific advice.

Mr David Burrowes (Enfield, Southgate) (Con): When he was Health Secretary, the Leader of the House referred a case of gender selection abortion to the police, no doubt considering it was in the public interest to prosecute. Does he share the grave concern about the fact that, despite sufficient evidence to warrant prosecution, the Crown Prosecution Service has dropped the case? There is urgent need for a statement to clarify whether the restrictions on choice in the Abortion Act 1967 are now meaningless.

Mr Lansley: My hon. Friend will understand when I say that these matters are the responsibility of the prosecuting authorities, and that inside the Government the Attorney-General is responsible for them, not individual Ministers. In so far as we express a view, it is best for us to leave it to the Attorney-General to look at such issues with the CPS.

Steve McCabe (Birmingham, Selly Oak) (Lab): Given the sad news in today’s The Sun that Birmingham, once the city of a thousand trades, has broken into the top five jobless blackspots in the country for the first time since records began, is it not time we had a debate on the need for a growth strategy for the whole nation rather than just London and the south-east?

Mr Lansley: I have to tell the hon. Gentleman that that is not the experience of Members across the country, who are seeing an increase in employment. There has been a 1.4 million increase in people in employment in

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the private sector, which is very encouraging. There are more women in employment than ever before, and the proportion of households in which nobody is in work has been reduced to the lowest we have seen. That is encouraging progress. It inevitably varies across the country, but the regional growth fund and the efforts we are making will make a big difference. I know how much he will also look forward to High Speed 2 enabling growth in the regions of the United Kingdom through access to markets and opportunities.

Bob Stewart (Beckenham) (Con): Next week, a group of parliamentarians from this House and the other place is to visit Gibraltar for the national day celebrations. May we have a statement from my right hon. Friend sending greetings to the people of Gibraltar on that important event?

Mr Lansley: I am grateful to my hon. Friend, and I am happy to send my personal greetings if he will be kind enough to convey them along with his colleagues—I assume that he is taking part. I also send greetings on behalf of the many colleagues throughout the House who support and appreciate the allegiance of the people of Gibraltar to the British Crown.

My hon. Friend gives me the opportunity to say that, as he knows, not least from what my right hon. Friend the Foreign Secretary said at questions earlier in the week, we remain concerned by the action being taken by the Government of Spain at the border with Gibraltar. We have responded robustly, in partnership with the Government of Gibraltar, and we welcomed the Prime Minister of Gibraltar here last week. We have made it clear to the Spanish Government that their unlawful actions are disproportionate and unacceptable. We have repeatedly expressed our desire to find a diplomatic solution that is acceptable to Spain while reaffirming, as we do from the Dispatch Box repeatedly, our commitment to upholding the rights and interests of the United Kingdom and Gibraltar.

Kevin Brennan (Cardiff West) (Lab): May we have a debate on how Ministers use language? Earlier, we repeatedly heard about “pathfinders”, “rolling out” and “agile processes”—the quiet man was back and turning up the jargon. Could we not make such meaningless phrases unparliamentary, particularly as the statement seemed to be less about universal credit and more about him attributing universal blame to everyone except himself?

Mr Lansley: I listened to my right hon. Friend the Secretary of State for Work and Pensions. He made perfectly good sense and used no jargon at all. He set out absolutely the right objective and policy. He is determined to get there on time and on budget. I heard that several times—he could not have been clearer.

Andrew Bridgen (North West Leicestershire) (Con): When questioned about High Speed 2 on Tuesday, the permanent secretary to the Treasury, Sir Nick Macpherson, told the Treasury Committee that:

“There will be opportunities to reassess it”

and that the Government

“have not signed a blank cheque”.

Will the Leader of the House confirm that that is the Government’s view?

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Mr Lansley: My hon. Friend will be aware that the Secretary of State for Transport will be at the Dispatch Box next Thursday to answer questions. Nobody is writing a blank cheque—that is the whole point. That is why, in the High Speed Rail (Preparation) Bill, we have clearly set out a budget with contingencies, as people would expect. They expect us to plan, as we did for the Olympics—a good example—to have a clear budget rather than one that keeps moving, and a budget that has sufficient contingency so that the project is entirely deliverable within it.

David Wright (Telford) (Lab): May we have a statement from the Secretary of State for Health on the continuing controversy over the reorganisation of A and E services in Shropshire? Telford people want to retain full 24-hour A and E services in Shropshire. I believe the people of Shrewsbury want the same. Should not health services be designed around the needs of people and not the needs of health bosses?

Mr Lansley: The hon. Gentleman and I agree that health services should be designed around the needs of people—that has always been our view. It is important that commissioning organisations—the new commissioning organisations, with general practitioners who know their population and patients best—have the influence necessary to make that happen. As he knows, Sir Bruce Keogh is undertaking a review generally of A and E services. I cannot comment on the specifics in Shropshire, although I remember them well, but I am sure the Secretary of State will have an opportunity before too long further to update the House on that review.

Sir Tony Baldry (Banbury) (Con): The Humble Address on Monday to mark the birth of Prince George of Windsor—[Hon. Members: “Cambridge!”] I am sorry; I meant to say Prince George of Cambridge. The Humble Address will provide an opportunity for hon. Members who were fortunate to be born in the reign of Prince George’s late great-great-grandfather, the much-loved and last King George, to observe how fortunate we are to have the leadership, continuity and security of the royal family. Will my right hon. Friend the Leader of the House give some thought to the possibility of affording an opportunity to Members of the House to subscribe to a decent christening present for the young Prince George of Cambridge? Perhaps it could be something he could use in later childhood, such as a really good cricket bat.

Mr Speaker: May I offer a manuscript amendment to that, namely “tennis racket”.

Sir Tony Baldry: We could have both.

Mr Lansley: I can feel a coat of arms coming on—[Laughter.] I appreciate the recognition of that joke from the hon. Member for Dunfermline and West Fife (Thomas Docherty). As one of the two Members who represent the city of Cambridge, I can say that we are only too delighted to have the titles not only of Duke and Duchess of Cambridge associated directly with the city, but of Prince George. Mr Speaker and others more fitted than I am might have a word about

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whether there is an opportunity to follow up my hon. Friend’s idea. No doubt they will let him know in due course.

Jason McCartney (Colne Valley) (Con): With the rugby league world cup getting under way in just 50 days’ time, may I suggest a rugby ball as a christening present?

I was delighted this summer during my volunteering week to join the Green Streams project clearing the bank of the River Colne at Milnsbridge. However, all our hard work was undone by appalling fly-tipping upstream. May we have a debate on the scourge of fly-tipping and see what measures can be taken to stamp out that damaging act to our local environment?

Mr Lansley: Given what my hon. Friend was saying about sport, perhaps, as the Tour de France will be going through Cambridge, a racing bike, not just a rugby ball, would be appropriate.

I think many Members will sympathise with my hon. Friend on fly-tipping. He will be comforted to know that local authorities and the Environment Agency have powers to deal with those responsible, but the Government are taking further action to tackle fly-tipping. We are strengthening the powers of local authorities and the Environment Agency to stop, search and seize the vehicles of suspected waste criminals.

Richard Graham (Gloucester) (Con): Half a million people have marginal deduction rates of 80%—they lose 80p in every £1 they earn. That is an unacceptable legacy of the previous Government that this Government are determined to put right through universal credit. Does the Leader of the House share my disappointment, therefore, that this morning the Opposition gave no support for a project that will help so many of our poorest workers? This is particularly ironic given all our concerns about living standards. Does he share my view that all Members should welcome the changes made by the Secretary of State in 2012 to ensure this vital programme is delivered on time and within budget?

Mr Lansley: My hon. Friend is absolutely right, and the points he makes came through strongly in the course of the exchanges. The Opposition utterly failed in their criticisms of the Secretary of State for Work and Pensions, my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith), and further demonstrated that while they may talk about welfare reform, they have opposed every step we have taken to live within budgets, and to heighten incentives to give people every possible encouragement and support to be in work.

Julian Smith (Skipton and Ripon) (Con): This week Yorkshire Water came to Westminster to meet Yorkshire MPs to explain why, at a time when it is raising customers’ bills, it paid zero tax in the past financial year. May we have a debate on how Yorkshire Water, and other water utility companies, are paying such low levels of corporation tax?

Mr Lansley: I cannot promise a debate immediately, but my hon. Friend will know that considerable effort is being put in by the Public Accounts Committee, the

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Treasury Committee and other Select Committees. The Government are seeking to ensure that people pay the tax that is due, and that we minimise tax avoidance and act against tax evasion. As far as corporation tax is concerned, the Prime Minister will update us on the G20 summit. Acting on an international basis on profit shifting and so on could make a dramatic difference. Following on from the G8, the Government and the UK are taking an excellent lead in trying to ensure that we have that kind of tax regime of an international basis.

Jeremy Lefroy (Stafford) (Con): A report by the Royal College of Physicians last year pointed out that whereas there are 30 medical specialties in Norway, there are 63, and rising, in the UK. It explained the pressures that this brings on to the NHS. May we have a debate on medical specialties in the UK and the consequences for the NHS—particularly on smaller, acute hospitals—and on the important work that generalists do?

Mr Lansley: My hon. Friend tempts me, because this is a very interesting subject. At the same as we have had greater specialisation and continue to try to ensure that we drive forward with excellence and the highest standards in clinical terms, there has been something of a revival in the medical profession of generalist positions, for example, general surgeons. From personal experience I know it is important sometimes to establish specialties. We did that about five years ago in relation to strokes, for which there was not previously a stroke speciality. It is a complicated issue that would no doubt merit debate. I cannot promise a debate, but what my hon. Friend has said may well start the ball rolling.

Christopher Pincher (Tamworth) (Con): Unemployment in Tamworth now stands at its lowest level since 2008. On 12 October, I shall play my own small part in helping to drive it down still further when, with the Tamworth Herald, I will host a jobs fair at South Staffordshire college. May we have a debate on jobs fairs to highlight the value they provide by bringing together local employers and jobseekers, and by the practical way they help us to help our constituents?

Mr Lansley: I am grateful to my hon. Friend. What he is doing in his constituency is important. He and other colleagues have demonstrated through jobs fairs that there are many practical steps we can take to help to connect those who are without work with the jobs that are available. The latest data show that we have near-record levels of vacancies in the economy. Matching people to jobs is vital, as the success of job fairs demonstrates. I will not reiterate the points I made earlier, but the increase in employment of 935,000 since the election demonstrates that they have the benefits that we are looking for.

Simon Kirby (Brighton, Kemptown) (Con): Tourism in Brighton and Hove is worth a staggering £1 billion a year. This morning, Labour twice failed to rule out a tourism tax in oral questions, and the Leader of the Opposition has failed to reply to a letter of four weeks ago. Indeed, the right hon. Member for Tooting (Sadiq

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Khan), who is in his place, seems to think it is a good idea. May we please have a debate on this disastrous policy?

Mr Lansley: If I may say so to my hon. Friend, I must not hold the Government accountable for the policies of the Labour Opposition—or, indeed, of any Labour council—but I can at least note that, as our old friend David Mellor once told us, dogs bark, ducks quack and Labour puts up taxes.

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Transforming Legal Aid

11.51 am

The Lord Chancellor and Secretary of State for Justice (Chris Grayling): With permission, Mr Speaker, I would like to make a statement about the future of criminal legal aid in England and Wales.

As the House knows, this Government have embarked upon a process of repairing the public finances, after years of reckless borrowing and financial crisis under Labour. As my right hon. Friend the Chancellor explained at the spending review in June, we are making good progress, but we must continue to take the tough decisions necessary. No area of our spending has been immune from scrutiny. Our legal aid system is a major part of my Department’s budget, and it is therefore necessary that we look to make savings there, too. The Ministry of Justice will see its budget reduced by nearly a third between 2010 and 2016. Our reforms would see the legal aid fund reduced by the same order of magnitude. It is worth saying that we have one of the most expensive legal aid systems in the world and that, by comparison with similar jurisdictions elsewhere, we spend between two and three times as much per head of population on legal aid. That is simply not sustainable for the future.

The House will remember that I set out our initial proposals to meet those challenges in April. In doing so, I emphasised two important objectives. The first was to ensure that we could live within our means and still deliver a quality legal service to those who need legal aid. The second was to guarantee access to justice by creating a firm contractual framework for criminal legal aid. That would enable us to ensure that we retain legal aid-funded legal support in all parts of the country, provided by organisations that will be financially sustainable in a tougher funding climate.

After publishing our initial proposals in April, we have undertaken intensive negotiations with the Law Society, which represents legal aid solicitors, who are the most affected by our proposals on criminal legal aid contracting. I am pleased to tell the House that we have reached agreement with the Law Society on a package of revised proposals on criminal legal aid contracting, which we are publishing for consultation today, and a copy has been deposited in the Library. I would like to express my thanks to the Law Society team for the constructive way in which they have approached a set of negotiations that I believe have led to a good deal for this country.

The proposals will mean that all those accused of a crime receive high quality legal representation, that defendants are free to choose their lawyer, whether they want a big firm, their local high street solicitor or a particular specialist, and that all those who currently provide criminal legal aid services can continue to do so, provided they meet minimum quality standards. However, I have to ensure that every person arrested and put in a police cell has access to a lawyer. In future, therefore, duty slots will be allocated through a tight contracting mechanism, based on quality and capacity to ensure that only firms or groups of firms that demonstrate clearly that they have the financial strength to operate in this new, tighter financial environment will provide that guaranteed support in police stations.

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The financial situation that this Government face means that fee reductions are inevitable. However, I have agreed to phase these between early 2014 and the spring of 2015, in line with a new timetable for contracting, so that firms have time to prepare and adjust. It is important to note that these proposals will enable my Department to operate within our spending review settlement, and therefore represent a long-term and sustainable way forward for the Government and for the profession. This is a good deal for the country and for the taxpayer. In addition, in order to reduce financial pressures on legal aid lawyers, I plan to make staged payments more readily available, to improve their cash flows.

In order to meet our financial objectives for Crown court costs, I am putting forward for consideration two options on advocacy fees. One builds on the proposals we put forward in April, but sets a floor below which fees cannot go, and recognises that there should be a different fee for guilty pleas and trials. The other is based on a scheme put forward in discussions between us and the Bar Council, and I am grateful to the Bar Council for that proposal. It draws on the scheme used by the Crown Prosecution Service. Both schemes represent a sensible way to reduce fees, particularly for the highest earners, as well as speeding up and simplifying the administration of the legal aid system. We will be guided by the views of the profession and other stakeholders in reaching a final decision on which scheme to implement.

It is also clear to me, particularly following the consultation that we have carried out, that it is not simply legal aid funding arrangements that determine the success and viability of the legal professions. I am therefore taking a series of steps that will demonstrate that the Government are serious about maintaining the legal profession in this country as a world leader. We have to go further to ensure that the criminal justice system is more efficient, so that cases do not demand more time and resources than necessary, in terms of public money and of the individual commitment by the lawyers involved. Alongside the criminal justice action plan announced by the Minister for Policing and Criminal Justice earlier this year, we are therefore putting together a panel of criminal lawyers to look at the whole legal process, to identify scope for improvements and to draw up proposals for reform. We need to speed things up and to reduce work loads.

It is also clear that advocacy is facing an uncertain future, given the rise of different routes into the profession, increasing supply but decreasing demand, regulatory changes and financial challenges. I have therefore asked Sir Bill Jeffrey to conduct an independent review of the future of criminal advocacy in England and Wales. This review will be carried out in partnership with the Law Society and the Bar Council.

Our initial proposals in April also set out a number of other changes to legal aid, in order to ensure public confidence in the system. I now plan to go ahead with most of those, subject to a number of limited modifications and exceptions. In particular, we will introduce a new residency test that will prevent most people who have only just arrived in the UK from accessing civil legal aid until a year after they arrive. We will limit criminal legal aid for prisoners so that it is not available unnecessarily. There will be no more legal aid available because someone does not like their prison. We will also set out new rules

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that will mean that, in most cases, the wealthiest Crown court defendants—those in households with more than £3,000 of disposable income left each month after tax, housing costs and other essential outgoings—will have to fund their own legal costs.

When I set out our initial plans in April, I was clear that they were for consultation. I have kept that promise. I believe that what we have agreed with the Law Society on criminal legal aid contracting is a sensible revised proposal that is tough but realistic. I shall be interested to hear whether the Opposition support the agreement. I do not deny that some of the proposals will be challenging for many, but in the context of unavoidable spending restraint, I have worked with representatives from the solicitors’ profession and the Bar to achieve the best outcome for everyone. I believe that it offers value for the taxpayer, stability for the professions, and access to justice for all. I commend this statement to the House.

11.59 am

Sadiq Khan (Tooting) (Lab): I shall start by thanking the current Lord Chancellor for giving me advance sight of his oral statement just over an hour ago. However, I am still somewhat puzzled as to why today’s edition of The Times was considered a more important outlet for the public announcement of this climbdown than the proper place for such an announcement, which is here in Parliament. Can the media-shy Lord Chancellor explain that rather odd decision to the House?

Let me reiterate Labour’s position. We support efforts to find savings across our criminal justice system. We support making those who can afford to pay their legal fees to do so and restricting legal aid to those truly most in need. We also support using the frozen assets of criminals to fund their legal costs, and we want a more efficient system. We offered months ago to work with the Justice Secretary, but he arrogantly refused, although I note that he has taken on board many of our concerns, which we welcome, and adopted our idea of having a review and asking experts to look at the legal processes to see whether further positive reforms can be made. Will he please give the House more details of this review?

Today’s statement provides confirmation that the Justice Secretary’s plans—and they were his plans—really were half-baked, legally illiterate nonsense. He has been forced to climb down, and the sloppy way in which he goes about making policy has been exposed by experts in the field—from judges to rape victims, and from high street solicitors to the victims of miscarriages of justice, who really know what they are talking about.

This Justice Secretary was warned—by us and others—that his plans would see the destruction of a swathe of legal small and medium-sized enterprises across the country, yet he denied that it would happen. He was warned that the removal of client choice would undermine confidence in our legal system; he denied it. He was warned that a flat fee would put pressure on the innocent to plead guilty; he refused to accept that, either. Does he now agree with all those criticisms of his original proposals?

This is the first time that the Justice Secretary has participated on a debate in this Chamber on legal aid, so I have a number of further questions for him. Will he

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confirm that the 16,000 representations that the Ministry of Justice received about his plans is a record? I note, of course, that the Justice Secretary has made a deal with the trade union for solicitors, the Law Society, which we welcome. Does the Law Society fully accept the plans he has published today? Does he still stand by his previous public criticism of the barristers’ trade union, the Bar Council? What discussions has he had with it about these plans? Will he confirm that his latest plans still lead to a single fee for magistrates courts’ work, regardless of whether the case is a guilty plea or a trial? The right hon. Gentleman will be aware that this could lead to a perverse incentive to persuade a defendant to plead guilty when he or she is not guilty. Given that the Government have changed their mind on this issue for Crown courts, why not for magistrates courts, too?

The Justice Secretary will be aware that small and medium-sized firms undertaking legal aid work are already struggling to survive. There is a real concern about their future viability after a 17.5% cut in their fees. In that light, will the right hon. Gentleman tell us about the impact assessments he has done on his latest plans? What will be their impact on high street firms, on junior barristers, on black, Asian and minority ethnic solicitors and barristers, and on access to solicitors across the country, particularly in rural areas?

Will the right hon. Gentleman tell us what changes he has made to his plans for civil legal aid and judicial review, bearing in mind the many concerns raised across the House about them? He should now be aware that his plans for civil legal aid would have prevented the Gurkhas and the family of Jean Charles de Menezes from getting legal aid, while his plans for judicial review would create a perverse incentive for lawyers not to settle cases because they will need to get permission at a court hearing to recover costs. How is he going to address those concerns?

I am pleased that the Justice Secretary used his summer to swot up on the law and the justice system. I am glad that the primer worked. I am pleased that he appears finally to have seen sense and to have listened to those who know better. We will study the new plans closely, and consider the 270-page document published by him today. The public want confidence that the rule of law is being preserved, that access to justice is being maintained and that those truly guilty are being prosecuted and punished after due process. The justice system needs to be both credible and efficient. These are the tests we will continue to use in looking at the Government’s plans to reform legal aid.

Chris Grayling: The Opposition are obviously finding all this rather difficult, because they agree that we have done the right thing. It is clear to me that the days of beer and sandwiches are long gone, because the Labour party has forgotten how a negotiation works. It works like this: you put forward proposals, you listen to a representation from the other side, you engage in a negotiation, and you reach a settlement. That is what we have done, and this is a good settlement for Britain. It enables us to meet our spending review targets, which is what the country would expect. What the Opposition do not like is the fact that we have done the right thing

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and arrived at the right objective—and we should remember that they never consulted on anything when they were in government.

The right hon. Member for Tooting (Sadiq Khan) asked me about this yesterday. I should point out that I took the unusual step of briefing the Opposition on our plans 24 hours rather than one hour in advance, because I recognised the importance of talking to the legal profession, whose members are personally affected by this change. I have tried to balance the interests of the House with those who are most personally and individually affected. That is why I shared the information with the right hon. Gentleman well in advance of any norm in the House.

The right hon. Gentleman referred to the concept of debates in the House. I seem to remember his telling the House that he would use a Labour Opposition day to debate this issue, because it was crucial, and the next Opposition day debate would be about legal aid. That never happened, because, in fact, the Labour party does not take this issue seriously at all.

The right hon. Gentleman mentioned magistrates courts, but, as he will know, our proposals were always about Crown courts. He asked about our discussions with the Bar Council. I have had many meetings with the Bar Council and the circuit leaders over the last few months. One of the two options that we have presented today was suggested to me by the circuit leaders and echoed by the Bar Council, namely the option of replicating more closely the way in which the Crown Prosecution Service works. I have received valuable support in relation to all this from the Attorney-General and the Solicitor-General, and I hope that those two options will provide a basis for a clear discussion about the best way forward.

The right hon. Gentleman made a point about small and medium-sized enterprises. The Law Society and I are clear about the fact that we expect these changes to lead to amalgamations in the SME sector. Legal aid services are currently delivered by 1,600 firms, many of which are very small. We will continue to allow those firms to carry out their own client work, but what is most important is that I provide access to justice—to which the right hon. Gentleman referred—in every part of the country. That requires me to be sure that I have firms that are financially sustainable in every part of the country, which is why we need the contracting mechanism that I am going to introduce. It is essential to ensure that there is access to justice, and that is a key part of these proposals.

Finally, the right hon. Gentleman mentioned judicial review. We intend to produce a consultation document on changes to judicial review imminently.

Sir Edward Garnier (Harborough) (Con): As the Lord Chancellor will know, I am a member of the Bar but have no personal interest in legal aid matters.

The Lord Chancellor said that he would propose a floor below which the fees of lawyers dealing with criminal cases could not fall. Is he hopeful that his proposals will not lead to a flight of the best from the criminal Bar and the solicitors’ profession, so that we find that we are not developing the senior barristers and solicitors who go on to become Crown court judges? I am concerned about what will happen to our criminal

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justice system in future if we do not have the experts—the top professionals—to deal with the most difficult criminal cases.

Chris Grayling: We have modified the tapering arrangements so that the least that a junior barrister can be paid for a day in a Crown court trial is £225 plus VAT. We all want talent to be maintained in the Bar. One of the reasons that, together with the Law Society and the Bar Council, we invited Sir Bill Jeffrey to head a review of advocacy was our wish to secure a proper strategy for the future. We are arguably training more barristers today than there are places for them. The balance of the profession and the number of people in the criminal Bar are important issues, and I want someone who is independent, and working in partnership with the two sides of the profession, to establish the best way for advocacy to evolve, precisely so that what my hon. and learned Friend has described does not come about.

Kevin Brennan (Cardiff West) (Lab): Only yesterday we saw how a miscarriage of justice can take place, and how someone—in this case, Barri White—can spend many years in prison for crimes he did not commit. Can the Justice Secretary give the House an absolute assurance that none of his proposals could result in further such miscarriages of justice?

Chris Grayling: The key to ensuring there is no miscarriage of justice is to make sure someone is properly legally represented. None of the proposals we have put forward have ever done anything to undermine the principle that in a trial somebody should have a properly qualified advocate of their choice to represent them, and that we must make sure that we have state of the art police and prosecution services—and my right hon. and learned Friend the Attorney-General is working hard to make sure we have a prosecution service that is as state of the art as possible. It is, of course, essential that we do everything we can to make sure there are no miscarriages of justice. Nothing in these proposals should mean that miscarriages of justice are more likely.

Mr David Davis (Haltemprice and Howden) (Con): I welcome unreservedly the Justice Secretary’s response to the House’s concerns about the criminal justice system. What he has done in that regard has been excellent. However, I and other Members still have concerns about some of the proposals that have constitutional implications—judicial review, the residency test and so on. The Joint Committee on Human Rights is reviewing the Justice Secretary’s proposals. Will he wait until it reports before implementing the proposals with constitutional implications?

Chris Grayling: The JCHR wrote to me to ask about the timetable, but we tabled our proposals back in April and made it pretty clear what the timetable will be. Of course I will talk to that Committee, but we need to make progress on the financial side. We will shortly be carrying out a further consultation on judicial review matters. I am open to listening to all Members of the House on those elements we are consulting on, and those that require legislation will be fully debated in this House.

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Natascha Engel (North East Derbyshire) (Lab): The legal aid budget comprises criminal legal aid and civil legal aid. What proportion of the budget goes on civil legal aid?

Chris Grayling: By the time all the changes we have introduced reach a steady-state point, the ratio will be roughly 50:50.

Simon Hughes (Bermondsey and Old Southwark) (LD): May I declare my interest as a lawyer and a member of the JCHR? I should also mention that I submitted a response to the consultation with some criticisms of the original proposals. I pay tribute to the Secretary of State for listening to the Committee responses and for responding, and also for producing a second consultation paper to which people can respond. It seems that the threat to the high-street lawyer and the specialist firm has been lifted, which is welcome, and also that the Secretary of State understands there are still savings to be made in time and cost in the legal system, which remain a scandal. However, may I just ask him to undertake to the House that the poor, those with special needs, the young, those who do not have English as a first language and those who may not be resident here normally but who have human rights issues of national and international importance will still have a legal system they can turn to in their hour of need?

Chris Grayling: I can give my right hon. Friend that assurance. I have listened to the representations made to me by members of the JCHR and privately by members of the judiciary about some of the more specialist situations—where people have been trafficked, where there is a child aged under 12 months, and other similar cases—and we have sought to identify cases where there are individual special needs that need to be met. That is reflected in the proposed changes—to the residence test, for example. When my right hon. Friend reads the detail of what we are proposing, I hope he will see that we have made modifications designed to reflect the concerns he and others have raised.

Karl Turner (Kingston upon Hull East) (Lab): I cautiously welcome the Lord Chancellor’s U-turn on price competitive tendering, but the devil is in the detail and I still have some reservations that this might well be PCT through the back door. What will be the criteria for obtaining a duty contract? Will it be about price or quality of service?

Chris Grayling: As I said in my statement, it will be based on quality and capacity. What has always mattered to me is that we can guarantee coverage around the country, but without some form of contractual mechanism to ensure we secure the supply of duty legal aid services at the very least, we will always risk the availability of a law firm that does legal aid in a particular area being at the whim of the market. I think that this set of compromise proposals will deliver the certainty we need, and that it will do so in a way that is much more acceptable to the legal profession. I am delighted that we have worked together with the legal profession to reach a point on which I think we can all agree and that is good for the country.

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Dr Julian Lewis (New Forest East) (Con): Do the changes have any implications for the military justice system, given the continuing concern both in this House and the country at the huge costs bill faced by the courageous SAS Sergeant Danny Nightingale as a result of trying to defend himself against an inappropriate prison term?

Chris Grayling: I obviously cannot comment about that specific case, but I am not aware of anything in these proposals that would have a detrimental effect on the very important processes we have in place to deal with military matters. It will be very much on my mind in the coming months to take a closer look at the whole issue of veterans and armed forces personnel and the legal profession, because I am not entirely convinced we do enough to make sure we recognise the needs of those leaving our armed forces who end up in the criminal justice system.

Valerie Vaz (Walsall South) (Lab): I am a non-practising solicitor. Of the 16,000 responses to the Justice Secretary’s original consultation, how many were in favour of those earlier proposals?

Chris Grayling: Of the 16,000 we received, the vast majority were single-template campaigns. We have not sought to add up pros and cons. What we have done is looked at the consultation responses in detail, and looked for sensible ideas. We have had constructive discussions with the professions who provided the most substantial responses, and we have brought forward what I think are the right proposals for the future.

Mr Robert Buckland (South Swindon) (Con): I refer to my declaration in the Register of Members’ Financial Interests. I thank my right hon. Friend for listening to the weight of opinion in particular relating to PCT and the need for quality representation at the police station. In the review of criminal process, will he make sure the rules relating to disclosure of criminal evidence are looked at very carefully, as it seems to me that considerable savings can be made, particularly in very high-cost cases?

Chris Grayling: I can certainly do that. I give my hon. Friend the assurance that when Sir Bill begins his work, I will pass those comments on to him. On PCT, it is worth reminding the House that the Labour party first came up with the idea.

Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op): Rather than a compromise, this is a complete climbdown, which prompts the question of who the Secretary of State spoke to before formulating his original proposals. The devil is in the detail. Will the Secretary of State say whether he is also reviewing what minimum quality standards will apply in this new contractual arrangement he highlights?

Chris Grayling: On the first point, I know the Labour party would like to portray this as some great climbdown, but the reality is that there has been a process of consultation and negotiation. That is how we reach good agreement. I know that Labour Members never did that in government, because they do not know how

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to consult, negotiate and agree, but that is what we have done and we have come up with the best deal for this country.

On the latter point, we believe this is being taken forward in the right way. I know the hon. Lady wants to look at the detail. The documents are available in the House, and if she has any further questions, we will respond in detail.

Charles Hendry (Wealden) (Con): I have a constituent whose children were illegally abducted by his ex-wife. In the court case to have them returned, his ex-wife had all her legal costs covered by legal aid, but my constituent as the innocent party incurred legal costs of over £140,000. Do the proposals include measures to address that sort of unfair and unbalanced situation?

Chris Grayling: I entirely understand the concerns my hon. Friend raises. I obviously cannot comment on the specific case, but what I can say is that within our legal aid system both now and in the future discretionary funding will be available for the unexpected and unusual case that might not conform to the central rules of the scheme but where there is a clear need for support to be provided.

Steve McCabe (Birmingham, Selly Oak) (Lab): Can the Justice Secretary assure us that there is no connection between the original opposition to his proposals from Churches, charities and advocacy groups and the Government’s subsequent efforts to muzzle those organisations through the lobbying Bill?

Chris Grayling: That is a pretty absurd question, to which the answer is that that is complete nonsense.

David Mowat (Warrington South) (Con): For the avoidance of doubt, will the Secretary of State confirm that the absolute level of savings implied in today’s statement is similar to that in the initial consultation and that we will be moving our costs in this area to a similar level as that in other countries?

Chris Grayling: I can give my hon. Friend an absolute assurance on that. In my very first contribution to this debate I said that I have to achieve the financial savings set out in our spending review settlement. I am not wedded to any exact way of doing so; if somebody has a better idea, I am happy to look very closely at it. That is what I have done, and this is the agreement we have reached, and it is just a shame that the Opposition do not understand that.

Sir Tony Baldry (Banbury) (Con): First, may I declare an interest as a practising member of the Bar? Does my right hon. Friend agree that it is not sustainable in the long term if some legally aided members of the Bar are earning substantially more than the Lord Chief Justice or the Prime Minister? One simply cannot continue to have such a system.

Chris Grayling: My hon. Friend is right; we have focused the majority of our changes relating to the Bar on those at the upper end of the income scale. I know that this is difficult and that these are painful decisions

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for some people, but there will be a limit to what we can afford to pay someone who is living off public funds entirely or almost entirely.

Paul Blomfield (Sheffield Central) (Lab): While welcoming the Justice Secretary’s statement, made in the face of the enormous opposition that his original proposals generated, may I press him further on one of the earlier answers he gave? Will his new proposals still mean that not only trafficked people, but separated children, survivors of domestic violence, detainees and children under 12 months will have reduced eligibility for legal aid?

Chris Grayling: We have made exceptions to that test with our modifications relating to the residency test, particularly for very young children and victims of domestic violence and of trafficking, and in one or two other cases where we have international obligations, but the vast majority of people who come to this country have to expect to be here for a while before they can access civil legal aid. That is right and proper, and it is what the public would expect.

Sarah Teather (Brent Central) (LD): From a quick scan of the consultation document, and further to the Lord Chancellor’s answer to the hon. Member for Sheffield Central (Paul Blomfield), it looks as though the Government have made substantial moves on categories of the vulnerable, which I welcome. However, the Lord Chancellor has not answered a point that a number of other Members have raised: what would happen with cases such as those of Baha Mousa, Binyam Mohamed and the Gurkhas? Will he confirm whether there is any exception for such important international cases?

Chris Grayling: Of course, cases such as the one raised regarding an inquest are covered separately. If the hon. Lady will forgive me, I am happy to give hon. Members responses to specific detailed questions, but I am not going to try in this Chamber to apply the new rules to individual cases. I do not think that would be the right thing to do.

Debbie Abrahams (Oldham East and Saddleworth) (Lab): The comment the Minister made about access to criminal legal aid for prisoners was inappropriate for somebody holding his office. Will the seriousness of a case or its merits be taken into account when people who have not been resident for 12 months are trying to access legal aid?

Chris Grayling: What we have done is set aside a certain number of areas of special case eligibility. The point about prisoners may be a point of difference between the hon. Lady and me, but we have a prison complaints system and a prison ombudsman, and I do not believe we should also provide public funding for people to go to court because they want to be transferred to a different prison. I think that the overwhelming majority of the public would be with me, rather than with her, on that.

Mr Andrew Turner (Isle of Wight) (Con): I listened with interest to the Lord Chancellor’s statement. How will his announcements affect access to legal aid for my constituents and on the Isle of Wight?

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Chris Grayling: I have listened carefully to comments that my hon. Friend has made. With the detail of the contracting, we will have more contracting areas. However, the rules we have put in place will mean that local firms on the Isle of Wight will be able to continue to provide own-client work, so there is no reason why there should not still be a good service for people on the Isle of Wight who need it. Of course, through the contracting mechanism for duty slots, we will have guarantees that duty solicitors will be available in police stations on the Isle of Wight, regardless of other circumstances.

Stephen Metcalfe (South Basildon and East Thurrock) (Con): I congratulate my right hon. Friend, both on his statement and on the sensible and careful way in which he has approached this issue. The statement will deliver fair access to justice for my constituents, while also making the necessary savings. Will he confirm that the savings being made will not be taken from other areas within his Department, that they are an overall saving and that it is still the same as originally proposed?

Chris Grayling: That is a very important matter. As the House knows, I have to make some substantial cuts across the Department. I am trying to balance them sensibly and to deliver them through reforms. What this package does is enable me, in a different way, to get to the same point financially. I am grateful to those who have been involved in the negotiations for the constructive way in which they have approached this. I know it is difficult and that it will be very unwelcome to many people in the profession, but it is the best option we have available.

Neil Parish (Tiverton and Honiton) (Con): I welcome the fact that the Secretary of State has listened to the consultation. Devon and Cornwall were going to be treated as one area for competitive tendering, but it was just too huge. Local companies and specialist companies in my constituency and area will get a chance to deal with the work, and I am happy that he can give us that reassurance.

Chris Grayling: Absolutely. As I say, it was a genuine consultation and a genuine process of discussion. I was impressed by comments made by my hon. Friend, and by colleagues in similar constituencies, about our having to do more to try to address the issues in rural areas, and that was something I tried to take into account.

Mr David Burrowes (Enfield, Southgate) (Con): With my interest as a criminal defence duty solicitor, I recognise that this is a tough settlement. However, may I thank the Justice Secretary for doing what he said he would do—listen, engage with professionals on the front line and adapt the proposals to make them work? Given that competitive tendering has been a Labour idea and that attempts at introducing it have been made on a number of occasions, will he confirm, once and for all, that PCT is now in the bin—not the one marked “recycling” but the one marked “refuse”?

Chris Grayling: This settlement will be for four years, plus, potentially, one additional year from 2015, so it will take us into the foreseeable future. Of course, competitive tendering was Labour’s idea. I apologise to the hon. Member for Hackney South and Shoreditch

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(Meg Hillier) for not making the point about the thresholds. We will agree the quality thresholds that need to be crossed by bidders with the profession, so that we get something that guarantees what we all agree is the necessary level to ensure that a quality service is provided. It is worth saying, however, that legal qualifications in this country are among the best in the world, so if someone is legally qualified, I regard them already as blue chip.

Richard Graham (Gloucester) (Con): The Secretary of State has listened carefully to the consultation on the original Labour idea of competitive tendering. He has achieved the necessary savings, he has ensured that only those with a strong connection to the UK can access taxpayer-funded—[Interruption.] Mr Speaker, the shadow Secretary of State has been chuntering away in a loud voice for most of this session, so may I finish without his interrupting me further? The Secretary of State has ensured that only those with a strong connection to the UK can access taxpayer-funded protection and he has looked after the interests of capable local legal firms in Gloucester. My constituents will welcome the changes. I regret only that the shadow Secretary of State is not capable of joining us in welcoming what has been announced today.

Chris Grayling: I very much welcome my hon. Friend’s support and his comments, and I am very grateful to him for them. The big problem that Labour Members have is that they were looking forward to an autumn of attacking the Government but we have a sensible set of proposals with which, I hope, most people will agree. That is Labour’s difficulty today.

Steve Brine (Winchester) (Con): I welcome the Lord Chancellor’s statement and thank him for it. His movement on choice after he appeared before the Select Committee in early July was welcome. It was logical to many of us there that changes to the PCT regime would follow. Does he agree that the revised model of tendering will result in some consolidation of smaller firms, as the market inevitably responds—that is not bad thing—ultimately leading to a more stable environment for law firms in the future?

Chris Grayling: That has been a central part of what we have agreed with the Law Society; there has been an acceptance from both of us that these changes will lead to consolidation. They will lead to bigger, but not giant,

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firms, which are more equipped to deal with a tough financial climate but will continue to deliver a quality service. That is what we are looking to achieve.

Bob Stewart (Beckenham) (Con): Does my right hon. Friend agree that a minimum of £225 plus VAT a day for a barrister in a court case is very fair?

Chris Grayling: I hope that it is fair. The aim is to ensure that there is a degree of certainty in all of this. We have put in place a taper mechanism, which I believe will reassure younger members of the Bar about the amounts they will be paid for the work they do in trials. That seemed to me to be a sensible development in our original proposal, and I hope that it will be welcomed.

Julian Smith (Skipton and Ripon) (Con): I thank the Justice Secretary for listening to the concerns of rural solicitors’ businesses and barristers across north Yorkshire, and I welcome his focus on quality. There are serious allegations of corrupt behaviour among some solicitors’ firms in Bradford, and this focus on quality has to be taken seriously.

Chris Grayling: That is very important. I want us to develop, in partnership with the professions, some clear standards for firms. We expect law firms to meet high standards, to behave without absolute propriety and to deliver a quality service. We will set standards that are exacting but appropriate as we move into the contracting phase. We want quality legal services for the future.

Sir Bob Russell (Colchester) (LD): The Lord Chancellor seems to have forgotten the Government’s localism agenda and support for small businesses, because although he said nice things about local high street solicitors, he gave the game away in the same paragraph when he referred to duty slots being allocated on capacity. Where does that place a two-person firm of solicitors that deals only with criminal law matters?

Chris Grayling: First, it leaves that firm completely free to continue its current specialisms and its own client work. If it wishes to bid for duty slots at police stations, it is free to do so in partnership with other organisations. From my point of view, it is crucial that I know that those people who are contracted to deliver duty slots in police stations will be there in one, two, four or five years’ time. If they disappear leaving a legal aid desert, I will not be able to guarantee that people will get access to legal services in a police station and that cannot be right.

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Point of Order

12.30 pm

Mr Barry Sheerman (Huddersfield) (Lab/Co-op): On a point of order, Mr Speaker. During the very important urgent question earlier, the Secretary of State for Work and Pensions said at one stage “he did not tell me the truth”. Opposition Members could not quite work out which person the Secretary of State was alluding to and that could lead to a great injustice to a particular person. Is there any way that you, Mr Speaker, could clear it up?

Mr Speaker: I am a little concerned that the hon. Gentleman has a sense of my psychic quality that is not matched by the reality. I cannot possibly know who the Secretary of State had in mind. The hon. Gentleman refers to a “particular person” who might have been subject to a grave injustice, but it must be said that the particular person, if there is such a person, is unlikely to be aware of that fact if he or she was not identified by the Secretary of State.

Mr Sheerman rose—

Mr Speaker: I do not think that there is a need at this stage for a further point of order. I wish to offer the hon. Gentleman practical advice. He should write to the Secretary of State and ask him who, if anyone, he had in mind. If that approach is unavailing and the hon. Gentleman wishes to pursue the matter further, I rather suspect that he will require no encouragement to do just that.

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Backbench Business

High-cost Credit

12.32 pm

Chris Evans (Islwyn) (Lab/Co-op): I beg to move,

That the House has considered high-cost credit.

I thank the Backbench Business Committee for granting us time for this afternoon’s debate, which takes me back to my maiden speech in this House, just over three years ago, in which I raised this very issue. My reason was simple: I grew up in the south Wales valleys, where doorstep lenders were as much a feature of the towns and villages as the coal slagheaps from the mining industry. Although the valleys have changed and are now green and beautiful again, one thing has not changed—the loan shark, whether legal or illegal, is still a regular visitor to the terraced streets of my youth.

Despite heavy campaigning by Members on both sides of the House, I still have constituents trapped in the appalling cycle of debt. Indeed, in March 2012 I tabled a ten-minute rule Bill calling for the introduction of legislation to tackle the problem of financial exclusion. Based on the US Community Reinvestment Act, it called on banks to work with community lenders in areas where the banks have only a limited presence. It was my hope that such a development in fair finance would ensure that financial exclusion did not continue to push families into high-cost credit.

My Bill was formulated against a backdrop of the increasing market for short-term loans. Just recently, Wonga announced that profits after tax had risen by 36% to £62.5 million in 2012. Whether we like it or not, people will always need money for an emergency—such as a car repair or a new washing machine—and with many of the mainstream lenders not even in the market it is the short-term loan companies to which people will turn. To put it simply, we are not going to abolish the sector. If we do that, we will do nothing but push money lending underground. Families in communities such as mine might be tempted to borrow from people who might offer unattainable terms and conditions and many of those lenders might even resort to criminal behaviour if money is not repaid to their satisfaction. That is not what anyone would want to see.

That does not mean there is no room for improvement in the present market. At present, payday loan companies are expanding into new markets and target customers who previously would have borrowed money from friends and relatives. Last month, a study by the housing charity Shelter Cymru and the citizens advice bureaux in Wales warned that nearly half of adults in my native Wales—some 48%—struggle to afford rent or mortgage payments.

One in six mortgage or rent payers in Wales does not have any financial safety net such as insurance or savings and 12% “struggle constantly” to make ends meet. Citizens Advice in Wales says that it has seen a 555% increase in the number of people asking for advice about payday loans. Sadly, whether we like it or not, unlike the future of households across Wales, which have experienced the second biggest drop in earnings in the UK since 2010, the future of loan sharks and payday lenders is more secure than ever.

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Despite the Archbishop of Canterbury’s announcement of plans to use the weight of the Church to boost credit unions so that they provide a real alternative, the Church is up against a considerable commercial opponent. In the past 12 months, the amount that the biggest five payday lenders spent on advertising rose by 26% to an incredible £36.3 million. My hon. Friend the Member for Sheffield Central (Paul Blomfield) pointed out while introducing his private Member’s Bill in July that the payday loan sector was worth just £100 million in 2004 and is now, less than 10 years later, estimated to be worth more than £2.2 billion.

Since 2011, the average amount owed on payday loans has increased by £400 to £1,657. People now owe more than a whole month’s income on payday loans. Over the past few years, there has been a very aggressive marketing strategy by these companies. The more payday loans are advertised, the more people will see them as a mainstream solution and will not look to other more cost-effective ways to borrow or make ends meet.

David Wright (Telford) (Lab): My hon. Friend makes the strong point that advertising and new technology are promoting those companies. One way we can tackle this is by making credit unions more visible on the high street and we have been trying to do that in Telford. We need to develop strategies to give credit unions a higher profile and make them more mainstream on the high streets so that more people will use them.

Chris Evans: I agree entirely with my hon. Friend. As I said before, we are faced with an absolute juggernaut of advertising. A credit union might promote itself to 70 people whereas a payday loan company can promote itself to 7 million if it puts its advert on television at the right time. As I develop my argument, I shall suggest strategies to take on the goliath that is the payday lenders.

Guy Opperman (Hexham) (Con): I wholeheartedly congratulate the hon. Gentleman on securing this important debate. Does he agree that just as we wish to expand and enhance credit unions we should also consider local community banks? They are trusted providers backed by the local community, and profits go back to the community after a limited time. They have strong local representation and an ability to lend at a better rate than even credit unions.

Chris Evans: I agree wholeheartedly. If the hon. Gentleman proposed that, he might gain cross-party support. As my hon. Friend the Member for Telford (David Wright) said, payday lenders have been extremely innovative in using advertising and the internet to reach people and we, as supporters of the credit union movement and community banks, must take a leaf out of their book, become innovative and consider other ways to reach the vulnerable people who see short-term lenders as the only solution to their problems.

After I was granted the debate, a constituent wrote to me about the problems he has faced with short-term lenders. When we met, he told me how payday loan companies added a range of administrative charges, interest and fees on top of initial loans. He borrowed in

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an attempt to pay back some of the money, but he fell further into debt as he took out loan after loan. He borrowed £400 from Wonga, but now must pay back £739. If he cannot afford the initial £400, how is he to afford £739? Where is the logic in that? It baffles me that payday loan companies seem to think that if someone is unable to pay back a loan, the answer is to take out another one. With Wonga breathing down his neck, he was forced to borrow £100 from QuickQuid, but now he owes that company £201.

My constituent told me that at no stage when taking out the initial loan was he asked about his income or expenditure, which bears out the findings of the Office of Fair Trading’s compliance review that only six of the largest 50 firms in the market made any attempt whatsoever to carry out proper income checks. That is simply not good enough. Had I not carried out such checks when I worked at Lloyds TSB, I would have faced disciplinary action—and rightly so—but such companies continue to follow those discredited practices.

The Office of Fair Trading also found that 75% of payday lenders renewed loans without checking whether they would be affordable, despite the fact that rolling over loans is a strong indicator that the borrower cannot pay back the money. It is especially worrying that each time someone fails to pay back a loan and takes out another one, they are committed to paying not only the interest on the initial loan, but admin fees and hidden charges on the new one.

My constituent was the victim of the culture of multiple loans, but he is not the only one. Some 30% of the people who contact StepChange Debt Charity for urgent help hold four or more loans. Parts of the industry are getting people into a vicious cycle of borrowing from one creditor to pay another. UK borrowers can end up paying back 74% of their initial loan in charges and administration fees on top of the money they borrowed. That figure is capped at 7% in Canada, meaning that the maximum payable in default interest and charges for a £300 loan is just £25. That practice needs further study in the UK. The consumer group Which? has called on the Financial Conduct Authority to replicate existing rules for mortgages and other credit products to help borrowers struggling with repayments. There is already a cap on default charges and fees in the credit card and mortgage markets, and we must consider extending such a cap to credit consumers.

I have further examples of how payday loans mean just piling on the debt. A payday loan company issued a man with a claim for £1,830 in penalty charges that were incurred for defaults on a loan of just £120. Each time the company went to his bank and was unsuccessful in recovering the money, it cost him £5, and the company made 330 attempts to get back the money. On top of that, the lenders added £178 of interest. It would be farcical if it was not true, but for many people in communities such as Islwyn, that is a sad fact of life each and every day. A Which? survey found that one in five users of payday loans were hit by unexpected charges and that, in the past 12 months, more than half of payday loan users had incurred charges because of missed or bounced payments.

We need to accept that borrowing from a payday lender is not like borrowing from a bank. When I worked in a bank, I would meet someone to discuss their needs. We would look at their income and expenditure,

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and talk about the affordability of loan and why they needed it, but even if the customer credit scored for a loan, I would still have no hesitation in saying no. However, with payday loans, because of the internet and fast access through iPhone technology, there is no one at the end of the line to say no, and what is worrying is that a person taking out such a loan may have the money in their bank account within 10 minutes.

For many, payday loans are a last resort. Many of the people I talk to have basic bank accounts that do not credit score for financial products. They have never got into mainstream banking, principally because they have seldom come across a bank in their lives. They see walking into a bank as a scary experience, so when they find themselves in dire straits and see the friendly advertising of Maud and Errol and the granny puppets from Wonga, or Amigo Loans, they think that there is a friendly place to go and they pick up the phone—they find it so easy. I therefore welcome the Government’s actions to investigate the effects of advertising and the year-long study of the market. I also look forward to the Financial Conduct Authority formulating a strategy in the autumn. However, I and others who have campaigned on the matter find the speed of implementing such measures frustrating.

As those processes are going on, short-term loan companies are devoting huge budgets to advertising, which I talked about in response to the intervention made by my hon. Friend the Member for Telford. The many daytime adverts predominantly reach the old, the young and the unemployed. Much as I welcomed the Government’s announcement in June 2012 that the Department for Work and Pensions would proceed with a credit union expansion project and make up to £38 million available to credit unions until March 2015, that is just a drop in the ocean.

Julie Hilling (Bolton West) (Lab): Will my hon. Friend join me in congratulating Bolton Wanderers on deciding, as a result of pressure, not to sign a deal with QuickQuid? Does he agree that we need to act on advertising not only on the television, but on our football pitches and throughout our communities?

Chris Evans: I join my hon. Friend in congratulating Bolton Wanderers. The first draft of my speech included a reference to the team turning down a sponsorship deal with QuickQuid, but I took it out for reasons of time. She raises an important point. The premiership is sold throughout the world. Anyone who watches “Match of the Day” or Sky Sports will see managers and players being interviewed after a match against the backdrop of their sponsors. There is nothing wrong with that, but seeing the names of loan companies such as QuickQuid or Wonga next to those of reputable companies such as Barclays sends the powerful message to the chap in the pub who has watched the game that those loan companies have the same legitimacy as blue-chip companies that follow the rules, work in a well-regulated market and look after their customers.

I have noticed the huge problem that payday and short-term loan lenders have recognised the absolute power of advertising. I do not say this often as an Opposition Member, but I feel sorry for the Government, because they are in a David and Goliath situation. They are investing £38 million over three years in credit

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unions, for which they should be applauded, yet the big five payday lenders have just spent £36.3 million on advertising in one year, and that will only continue.

As the treasurer of the all-party group on credit unions, a Co-operative Member of Parliament and a member of the Islwyn community credit union, I think that credit unions are the way forward. They offer vulnerable people with few safe options an alternative to get cash when they need it most. They are the remedy to predatory loan sharks and high-interest lenders. Aside from the more regulated industry that I would like to see, the alternative to high-cost credit is a financial services sector that contains a wider array of ethical and enlightened products and services.

Mike Thornton (Eastleigh) (LD): I entirely agree with the tenets of the hon. Gentleman’s speech and thank him for securing the debate. My constituents say that while credit unions are all very well, a person needs to be saving with one before it will lend to them. My experience and that of my constituents is that problems often arise when people have not been able to save in the first place, meaning that credit unions are unable to lend to them under their rules, so could we consider dealing with that?

Chris Evans: As I have said, we need an innovative approach because the payday lenders have become huge and they are a first-stop shop for anyone who needs money. We need to examine how credit unions are funded and to let people borrow through the Post Office.

In addition, yesterday I spoke to the UK Cards Association and asked whether there was a way to get credit cards to impose a small limit and micro-manage them in some way. It was very receptive to the idea. My argument was that then the big banks could be involved and they could use their own account management techniques. It would be a win-win for everybody in many respects. A decent interest rate could be charged on a credit card and the banks could then manage people who need short-term loans into mainstream banking. That is the way forward. I have every sympathy for people who need this money, but the way forward is to find a way with the big banks to manage people into mainstream banking.

Justin Tomlinson (North Swindon) (Con): I welcome much of what is being said, but I have a word of caution. An unauthorised overdraft in a mainstream bank is equivalent to 80,000% APR. We may not want to signpost people towards that.

Madam Deputy Speaker (Dawn Primarolo): Order. Before the hon. Member for Islwyn (Chris Evans) concludes his remarks, I gently remind him that the recommended period for opening a debate is 10 to 15 minutes and he has now had 19 minutes. I appreciate that he has taken interventions.

Chris Evans: I apologise Madam Deputy Speaker. I am coming to an end, but I will just deal with the hon. Gentleman’s point. The significant word is “unauthorised”. I know that the hon. Gentleman has done a lot of good work on financial education, which is the way forward.

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An unauthorised overdraft is a failure to manage the account properly, so we need to teach people how to do that. I think that he would agree with that.

Credit unions rightly receive support from both sides of the House, but to flourish they need the support and help of Government. If that means regulating the high-cost credit industry while at the same time restricting its advertising budgets, as we have done in other industries, so be it.

Once again, I thank the Backbench Business Committee for granting me time for this debate. I know how important it is to Members from both sides of the House and I look forward to hearing colleagues’ contributions.

Several hon. Members rose

Madam Deputy Speaker: Order. I inform Members that there will be an eight-minute time limit starting immediately with Back-Bench contributions.

12.52 pm

Jackie Doyle-Price (Thurrock) (Con): It is a great pleasure to follow the hon. Member for Islwyn (Chris Evans), who has given an excellent introduction to the debate. I pay tribute to colleagues on both sides of the House who have done so much to shine a light on some of the more irresponsible practices that have sadly become all too commonplace in this industry.

My remarks today will focus on what I think we would all agree has been a regulatory failure in this section of the market, and I want to refer to a Public Accounts Committee report which some hon. Members present today were involved in producing. We looked at the regulation of consumer credit earlier this year, and we reached the firm conclusion that the Office of Fair Trading had been found wanting in getting to grips with tackling some of the more unpleasant practices of high-cost lenders. The message that I would like Parliament to send out today is that we are now at a crossroads with the regulation of this sector. The Financial Conduct Authority is preparing to take responsibility for it from the OFT, and bearing in mind that the OFT has been so slow in getting to grips with this, I want us to send a clear signal that we all expect the FCA fully to use the regulatory tools at its disposal to challenge the sector, and to be fleet of foot in intervening where we see poor practice.

The OFT has had a number of tools that it has failed to use, and there are clear breaches of rules. There are powers under the unfair contract terms regulations that could easily have been used to tackle some of the more unacceptable levels of fees and penalties for default, which are probably the most acute cause of additional cost to anyone who takes out these loans. Equally, every credit provider is required to follow responsible lending rules. As the hon. Member for Islwyn outlined in some of his examples, the advancing of credit to people in such situations was far from responsible lending. The OFT has the power to withdraw credit licences, but it has failed to use it, resulting in irresponsible lenders and unscrupulous companies exploiting the vulnerable and

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laughing all the way to huge profits. That is not acceptable, so Parliament needs to give a clear signal about what we expect the FCA to do in future.

Much of the debate in the past has focused on how we control some of the costs. As I have said, I believe that the unfair contract terms regulations give regulators the power to intervene to control some of them. However, we have a real problem with the consumer credit directive, which has prescriptive rules about how firms advertise costs of credit with reference to APRs. The reality is that APRs are meaningless in this sector, because we are talking about loans that are advanced for a short period. The real issues are how much the credit will cost and the transparency of additional charges. I have seen one example of a payday lender who charged £25 for each reminder letter sent when a customer defaulted. That would not be caught by any regulation regarding APRs. It is an unfair contract term and a clear exploitation. The powers exist to control such activities. The PAC stated explicitly that we wanted the misleading APR rules to be ditched and replaced with clear guidance on and responsibility for publishing the cost of credit in amounts repayable in cash.

I also associate myself with the hon. Gentleman’s comments on credit unions. As we all readily understand, the only reason customers access credit in this way is because they cannot get it from anywhere else. Unfortunately, mainstream lenders are not interested in providing small loans for short periods. However, we have to be careful about prescribing additional regulation for the sector, because if people cannot get credit from it they will go elsewhere and that will send them into the hands of some very unscrupulous people.

Stella Creasy (Walthamstow) (Lab/Co-op): Will the hon. Lady give her evidence for that assertion? It is a myth that many of the lenders propagate. Where does her evidence come from to show that if caps were introduced, people would go elsewhere?

Jackie Doyle-Price: The reality is that people will follow regulation if it is economical to do so, otherwise they will go elsewhere. My evidence is that people are accessing these loans in the first place. We have a failure in the market to extend affordable credit, and that is the issue that we are trying to tackle today. I remind the hon. Lady of what was said earlier. The rules and the tools are already in place, but the regulator has failed to use them. This is not about more burdensome regulation; it is about regulators being prepared to use their teeth and the tools that they have to do the job.

Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op): Further to that intervention, the hon. Lady may remember that the PAC heard evidence from Fair Finance, which explained that if the interest rate was capped, as a social enterprise it would have to lend a higher amount to individuals, so risking greater indebtedness. So we have to get the balance right to make sure that people without a credit record get the loan that they need but are not over-indebted.

Jackie Doyle-Price: The hon. Lady is quite right. The cost of extending small amounts of credit is higher, pound for pound. We have to be sufficiently grown-up to realise that when we are considering regulation. I

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have not yet come across one consumer organisation that is in favour of caps. They all recognise that there is a market failure and a need to clean up the industry, but caps are not their preferred tool. However, there are some measures that they would like to see. The first is a ban on excessive default fees and charges. Again, this is not the preserve of the payday lenders. Unauthorised overdraft users also experience punitive charges, which again illustrates that these are issues that extend throughout the credit market, which the regulators need to grips with. In fact, Which? has found that unauthorised overdraft users suffer more from excessive charges than payday loan users: more than 20% of overdraft users are surprised by the level of charges they face. Again, we need to look at using the regulatory tools available. The FCA’s requirement will be that any institution has to treat its customers fairly, and that would extend to not having excessive charges. The regulatory power is there; it just needs to have the guts to use it.

Secondly, the FCA must give a clear signal that it really will implement the rules on irresponsible lending. We have seen that 48% of payday loan users and 44% of unauthorised overdraft users have taken out credit that it turned out they could not afford. It is clearly irresponsible lending for any firm to continue extending credit with roll-over loans or to let an overdraft get ever worse. It must be clear to lenders that they will face penalties from the regulator if they continue to exploit vulnerable consumers.

We all need to think about what more we can do to support effective debt management and encourage people to take appropriate advice, because when people are desperate the only place they can go is to those lenders. We need to make it much easier for them to access advice that will help them, so that they do not get into a worse situation.

There also needs to be a clear sign to lenders that they must give clearer information on what the consequences will be if people default. We know that many consumers are over-optimistic about their ability to pay off credit on time and in full, so clear warnings are needed about what the consequences will be if they do not. Those warnings need to be given in a simple and clear way, such as by stating the amount of cash it will cost per £100 if the loan is not paid on time, so that people really understand the deal they are getting into. Again, that is consistent with the Public Accounts Committee’s recommendation. Even mortgage statements, and indeed any credit, should come with clear health warnings explaining the consequences of missed payments. All costs must be transparent.

I believe that those measures would greatly strengthen the protections for consumers. That is what we really need to focus on today. I agree that we must look at what more we can do to support credit unions. I think that employers have a big role to play, because we know that many payday loan customers are in jobs. If employers can be encouraged to have relationships with their local credit union, that would be a good way of signposting people to more reputable lenders. We need to use the tools we already have for the job: tough rules on responsible lending, tough action on default charges and much more regulatory activism.

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1.2 pm

Stella Creasy (Walthamstow) (Lab/Co-op): I am pleased to follow the hon. Member for Thurrock (Jackie Doyle-Price), because I genuinely believe that there is now a clear divide between the political parties on how best to approach something that we all agree is a problem. I am pleased that Government Members are now talking about the problems payday lending causes and recognise that there is a problem with the market. Our disagreement is over how to deal with those problems and what the challenges are.

It will come as no surprise to the hon. Lady that my perspective on how to deal with the incentives in the market is very different from hers. In the time available, I want to try to explain why I think that tackling the incentives is so important and why the evidence on how caps work shows that they are the best answer, given the challenges we now face.

In talking about those challenges, we must remember that in the past three years we have seen a tenfold increase in the number of people going to a citizens advice bureau for whom debt involving payday lending is a problem. When I started campaigning on this issue, along with many colleagues, we were looking at 1 million people borrowing in that way, but the figure is now 5 million, and 20 million people in this country are desperately worried about their debt picture, with the cost of living continuing to rise. We know that people need access to credit and that these loans are causing problems with gaining that access. I absolutely accept that not everybody who borrows from a payday lender gets into financial difficulty, but enough of them do, as a result of the terms of the loans and how the market works, that it is right for Parliament to intervene and to try to learn from the experience of other countries about what works in tackling that kind of credit.

In this industry people do not make money by lending at a high rate of return; volume is what matters. If lenders can lend to people in a way that makes them more likely to keep coming back to borrow more, because the following month they are a little short again, and the month after that, that is when they make their profit. Indeed, market analysts have pointed out that 50% of the revenues of those companies come from just a small number of their customer base, their repeat borrowers. Indeed, one company operating in the UK makes 23% of its profits from just 34,000 people. Who are those 34,000 people? They are the people who are constantly indebted because every month they have to borrow, because borrowing from those companies means that they are more likely to borrow the following month.

It is the spiralling principle that we have to tackle. When we look at that principle, we must ask what incentive it creates for the market and how the companies make their money. The OFT research shows something that many of us have been warning about: debt is positive in this industry. If companies can get people to keep rolling over their loans and borrowing from them, that is how they make their profit. That is why we are seeing Wonga making £1 million a month more in this country. It is not just Wonga; there are now four companies in the UK making over £100 million a year by working in that way, pushing people into debt, constantly extending their loans and pushing them with their marketing and advertising.

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They know that because those people have borrowed from them once, they will probably need to borrow from them again, because that is the way in which the loans are constructed.

Some people borrow £300 but end up owing £811 in interest alone by the end of the year because they get caught in that spiral and because of the price of the credit. That means that the average payday lending customer, who earns £18,000 a year, would pay 6% of their entire annual income to pay off a £300 loan. It is little wonder that the OFT research shows that few of those companies are doing affordability checks, because affordability does not matter once they have people hooked. It means that they can always get some money from them.

Who are the people who take out payday loans? There is the nurse who came to see me. She borrowed £100 because she had a flat tyre. She ended up paying back £17,000. Thankfully her mother, because she got a redundancy settlement, was able to help her out. There is the father who came to see me. He has tried to tell Kwik Quid multiple times that his son has mental health issues and asked it to please to stop lending to him because he cannot afford to keep paying the bailiffs when they turn up at his doorstep. But of course they keep marketing, because once they have someone hooked they are more likely to have to keep coming back again and again.

Yes, all those practices break the self-regulatory codes that those companies have come up with, but that should tell us something. Just as it is no point asking turkeys to organise Christmas, it is no good asking companies to act themselves when they can make those kinds of profits by setting their own terms, hooking people in and continuing to charge them to set the limits. It makes no sense. That is why we have to learn from other countries where intervening on price is what has changed behaviour. Yet those countries still have payday lending industries and have not seen the exit that the companies threaten. They also have lower levels of illegal lending and personal debt.

Which countries am I talking about? There are multiple examples we can learn from when it comes to total cost capping—not interest rate capping, which I have never argued for, and which nobody else I know could credibly argue for. Whether we learn from Japan, the American States such as Indiana and Washington, from the Canadian states of British Columbia, Alberta and Manitoba, or from Australia, which has brought in new models, there are examples out there of how we could tackle the problems that people in our country are facing now with the cost of credit without removing their ability to get hold of credit.

Like my hon. Friend the Member for Islwyn (Chris Evans)—I pay tribute to him for the work he has done in the all-party group to promote credit unions—I am a passionate defender of credit unions. I have one in Walthamstow that is working as hard as it can against 18 of those credit companies on my high street, and that is before we even get to online lending. He is absolutely right: it is not a fair fight. That future credit market that works for everyone contains payday lenders, credit unions and social finance organisations.

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Sheila Gilmore (Edinburgh East) (Lab): I am glad that my hon. Friend has raised the issue of imbalance, because one of the answers frequently given to me is that we need credit unions, but when volunteers are pitted against professionals that is very difficult. Would it not be helpful if far more financial support was given to credit unions to back that up?

Stella Creasy: I absolutely agree. In that future model of a finance system that will work for people struggling in a system in which the cost of living is continuing to rise, credit unions absolutely need to be supported to expand and grow—we know that they make up only about 6% of the total finance market in this country— but that is alongside a capping process.

The time for arguing about whether capping is the most effective intervention in this market is over, because the evidence from other nations is overwhelming. The question we should be asking ourselves is what we can learn from that for the UK, because the UK credit market is different. We have always been a nation of people who are much more willing to borrow, and so the terms and reference frames for any kind of cap must reflect that. That is where the Financial Conduct Authority could come in. That is why we fought so hard to give it the power to cap, and why I am pleading with the Government not to sit on their hands yet again on this issue.

The Financial Conduct Authority takes over in April next year. It is hampered by the fact that it needs to see the evidence about the UK credit market. It needs the credit reference data and other evidence from the companies, all of which claim that they are responsible lenders, yet about all of which we have heard stories of bad conduct. Indeed, Citizens Advice has shown that some are not even following 10 of the 12 good practice codes. If we are really serious about resolving the problems in this market, let us ask the FCA to do its job but also give it the data so that it can do so from the get-go in April. We should tell the companies to give it the data about their credit market, their profit ratios and how they are operating so that we can see how and where a cap would influence the UK credit market from April next year. Let us not kick this issue into the long grass yet again, because we now have a window of opportunity.

I am sure that many Members, like me, have people in their communities who have £10,000 or even £15,000-worth of unsecured personal debt hanging over their families. Asking those families to make long-term choices about education, social care and housing costs is a non-starter in that context. Those debts are racking up because of these kinds of practices. We could help them to manage the cost of living, to manage their borrowing and to make ends meet if we do our job today and get the regulator the information that it needs so that it can make the choice about what kind of cap would work in the UK. I think that the Japanese model is the way forward, because it has been done in practice along with the industry and consumer groups. Let us not have another three years of talking about how terrible these problems are and having to work in our communities with fantastic groups such as Movement for Change, the trade unions and the credit unions to try to deal with them when we could do something to avert them in the first place.

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I hope that Ministers will today make the commitment to push the industry to give the information to the Financial Conduct Authority so that it can hit the ground running from April 2014 and finally bring in the cap that British consumers deserve.

1.12 pm

Mr Robin Walker (Worcester) (Con): It is a pleasure to follow the impassioned speech by the hon. Member for Walthamstow (Stella Creasy). I congratulate the Backbench Business Committee and the hon. Member for Islwyn (Chris Evans) on securing this very important debate. He took a sensible and non-partisan approach, and I appreciate that. There is cross-party consensus on the mood for taking action on payday lenders. Many Members from all parties came to this Chamber to support the private Member’s Bill on the subject introduced by the hon. Member for Sheffield Central (Paul Blomfield)—I would call him my hon. Friend—which I still hope can make some progress in forming Government policy.

Other Members have mentioned constituency cases. I have recently been particularly moved by a couple of cases in my own constituency. In one, someone had six separate loans from payday lenders, which clearly cannot be justified on the basis of seeing them through until payday, and they were being absolutely crippled by the interest. In another, a pensioner living on the basic pension got thousands of pounds in debt to payday lenders—a clear sign that some of these businesses are not looking at the affordability criteria. It is right that we should express our concern about such cases.

I am sorry that the Bill did not get voted on on Second Reading; a number of us were here to support it. In responding, the Minister expressed some understandable concerns on the part of the Government, which were shared by the previous Government, as regards not wanting to tie the hands of regulators. However, this House has been clear in its desire that regulators consider caps. It is very important that we give guidance to regulators about what we expect them to do. The Government are right to have launched investigations into the impact of advertising in the sector, but many of us are a little frustrated by the pace of action on that front and would like more to be done. The hon. Member for Islwyn made some good points about that.

We have to acknowledge that high-cost lending goes much wider than the payday loan industry. It also covers doorstep lenders and credit cards where they are not used appropriately; people can build up enormous amounts of high-cost debt through that sector. As the hon. Gentleman pointed out, there is also a large informal sector that we should be wary of encouraging or supporting. Many Members have noted that when banks generate overdraft charges they can raise the cost of borrowing to exceptionally high levels. His comment about moving people into mainstream banking was absolutely right, but we need to find tools to do that which protect them from such charges. In a recent discussion with Six Towns credit union, I was interested in a ring-fenced bank account that it was considering launching which would allow people, in effect, to set aside rent and energy bill payments and only then access money to

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spend on other things. Innovative financial products like that can help to move people towards mainstream finance.

We need to look at the overall level of debt. Any debt is high-cost if it is unaffordable. We still need to do more work on deleveraging the economy as a whole. Some progress has already been made on that front. It would be wrong for anyone to pretend that overall debt problems are greater now than they were in 2008, at the height of the boom. Credit Action produces monthly reports that show a significant decline. In July 2013, overall unsecured debt was £158 billion. That sounds an awful lot, but in 2008 it was £231 billion. In the 1980s, during the boom years under Lawson, household debt as a percentage of income rose from 70% to 80%. During the period when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) was Chancellor and Prime Minister, it rose from 80% to 170%. It is now falling back to 145%, but that is still too high. There is significant progress to be made on the level of debt as well as its quality.

On quality, we need tools to help people to access the better lenders and to ensure that customers are well informed on the real costs. As many Members have said, percentage rates do not tell the whole story: hidden costs and charges are important. We should pay tribute to the many financial advice services that work in the voluntary sector and the state sector to try to provide that information, including Citizens Advice, which we all know well in our constituencies. I am delighted that the Archbishop of Canterbury has entered this debate and offered support to the credit union movement and the voluntary sector in taking on the loan sharks. The Church can play a very important role in this, as Christians Against Poverty and many other religious groups already do.

Ian Swales (Redcar) (LD): The hon. Gentleman is making a very good speech. He talked about the percentage rates that are quoted. Does he agree that there should be much clearer ways of explaining to people what they will have to pay back, given that only about 10% of people understand percentages?

Mr Walker: My hon. Friend is absolutely right. The work that my hon. Friend the Member for North Swindon (Justin Tomlinson) has done on financial education will be crucial in getting people to understand the reality of what taking out a loan means and all the potential hidden costs, including the real cost of interest over whatever period it is charged, which is often far more directly important than levels of APR.

I had an interesting meeting about debt issues with members of Worcester’s Tolladine mission, which works with a number of local churches in one of the poorest areas of my constituency. They strongly supported the initiatives we have heard about to support credit unions and make them more accessible. They also made it absolutely clear that financial education will be key. It is a huge victory for my hon. Friend and his cross-party campaign to have secured financial education in the national curriculum, but that is only the start. We should not kid ourselves that writing something into the national curriculum will solve the problem. We will have to make sure that it is taught well and that a generation of teachers who came through the system

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when financial literacy was not a key component get the best opportunity to take it forward. There will be real challenges along the way in doing that.

The Government are doing a lot to support credit unions, as did the previous Government, but there is still much further to go to catch up with the levels of credit union engagement in other countries. Achieving that should be a constant challenge. Tragically, in Worcestershire we lost our local credit union, not necessarily because it did not have support but, unfortunately, because of bad lending. Capacity in credit unions is another vital aspect. I am very glad that Six Towns credit union, from elsewhere in the midlands, is now looking to move into our area.

On overall levels of debt, it is important that all Governments set out policies that help people not to get into debt, which the coalition Government are trying to do by making sure that people keep more of the money they earn and by raising the income tax threshold.

We need an incentive to support the growth of credit unions and responsible lenders. As I argued when we debated the Bill, I think it would be wrong for the Government directly to subsidise the credit union industry, because that would undermine its business model when we want such businesses to be able to stand on their own two feet. I suggest that we should go further than even the CAB argues in its briefing paper, which welcomes the extension of the Money Advice Service levy to payday lenders, and consider putting a higher levy on high-cost lenders. We should create an incentive for people to go to credit unions, and the higher levy would create a fund to support financial advice services, financial education and all the other good things that can help people. Yes, we should support the credit unions, but we should do so indirectly by giving them that competitive advantage.

There is a straightforward way to do that. The Government have set a cap on lending for credit unions. If we start the levy at the top of that cap and apply it to all lending over that amount, it could create a valuable revenue stream to support the free financial advice industry and the financial education industry. I urge the Government to look again at the provisions in the Bill and to examine what they can take from it, because it made some well-thought-through recommendations.

I welcome today’s debate and the consensual way in which it is being conducted. Parliament can do a lot on this issue and we should continue to concentrate on it.

1.21 pm

Yvonne Fovargue (Makerfield) (Lab): It is indisputable that everybody needs access to credit, but it has always seemed perverse to me that the people who can least afford it pay the most and therefore need the most protection, because they are the most likely to be vulnerable to exaggerated claims and to be in need of a very quick solution to the immediate need for cash.

Payday loans are not always the illogical choice, despite the rate of interest. If someone’s washing machine breaks with two weeks to go until their payday and they know they will have an overtime payment in their next pay packet, it makes sense for them to shop around and buy another washer for £200 with a short-term loan—at

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a total cost of £267—than to go to BrightHouse, pay £600 for the same product, have a mandatory five-year guarantee for £400 and pay it back over five years at about 30% interest, which would result in a total cost of about £1,500. But—and it is a big but—although such loans provide a service, they cause detriment to tens of thousands of people each year and their providers have been, and still are, guilty of bad practices that cause much concern.

The Office of Fair Trading report highlighted bad practice by the vast majority of the industry and warned a number of them that either they clean up their act voluntarily or action would be taken, and they have been referred to the Competition Commission. I am pleased that some have had their licences revoked, but I hope that stricter enforcement will continue until the Financial Conduct Authority takes over in 2014. That transfer of responsibility gives us a golden opportunity to clean up the market and protect vulnerable consumers, but what are the payday lenders suggesting? A voluntary code of conduct devised by the industry.

There are two things wrong with that. First, it is voluntary. It is not even a requirement to be a member of a trade body. If consumers do not even research the cost of paying back a loan, they certainly do not research whether their lender is a member of a trade body—that is if they are aware of who the lender is, a point I will return to later. Secondly, the code has been devised by the industry and I am not totally convinced that it will put protection before profit. Statutory regulation and a constant review of the market are absolutely necessary.

I will outline the main issues that I think are causing problems. The market is ever changing and new practices emerge almost daily, so we need a flexible regulator. The first and most important issue—it is probably more important than headline-grabbing high interest rates—is the continuous payment authority. People who do not know what this is are not alone, because the banks, let alone the consumers, do not know, either. What it means is that the loan company can access someone’s bank account at any time, for any amount of money, as many times as it wishes. It is not just a blank cheque; it is a continuing, unending number of blank cheques. A constituent of mine had her account debited four times just before Christmas. Her account was cleared completely, leaving her with no money for Christmas, and she only became aware of this when she tried to pay for her Christmas food shopping and could not. It is clear in all the guidance that the customer should be able to cancel the CPA with either the lender or the bank, but Citizens Advice has numerous examples of the banks telling people that it cannot be cancelled by the customer because it is different from a standing order, and of the lender preventing people from cancelling.

Another practice I have recently become aware of—I am looking into this at the moment, because I heard about it only two days ago—is that of companies asking for a borrower’s online bank account details, including their PIN number and password, which makes the matter even more problematic. The lender can see when the individual is paid and when the rent and bills go out and take advantage of the gap, plunging the borrower into even more serious debt.

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The other major problem with the continuous payment authority is that it reduces the incentive to perform a thorough and proper affordability check. After all, if a lender has unlimited access to someone’s bank account, why bother too much about checking whether they can afford it? The lender can dip into their bank account at any time, for any amount. Continuous payment authority has been described to me as the one thing that the payday lenders really want to keep. On that basis—as I used to say when disciplining my daughter—it is probably the one thing they should not have.

There is an issue with the industry writing its own code. Wonga has given 10 commitments and I have evidence—I do not have time to give it—that demonstrates how its code needs to be thoroughly examined. Even given the three extensions and the 60-day interest at 1% of the principal under commitments 6 and 7 of the code, the total repayment amount for a loan of £200 would be £588. That is a cause for concern.

Too many people delay the evil day when they have to sit down and face the difficult fact that they cannot afford their outgoings. As a result, they use payday lenders, because it is hard to admit to family or anyone that they cannot afford to keep going.

Stella Creasy: Is my hon. Friend, like me, worried about the evidence that a quarter of payday loans are taken out to pay off other forms of credit—not just other payday loans, but credit cards and other bills? People get caught in a trap and that becomes the only way for them to try to manage the situation.

Yvonne Fovargue: I agree with my hon. Friend. Citizens Advice and StepChange say that in the last quarter the number of people with six or seven payday loans has gone up tenfold.

This situation cannot continue. There must be an obligation on payday lenders to signpost customers to free sources of debt advice if they fail the affordability check, which should be thorough, or miss a loan repayment. Of those who responded to the Citizens Advice survey who had repayment problems, only 18% felt that the lender dealt with them sympathetically and only 8% were told that they could get free debt advice.

This is an industry that contributes to the debt problems of individuals, as my hon. Friend said. It is welcome that it pays a levy and I do not disagree with the very interesting suggestion that they should pay more. It is vital that that additional contribution represents an increase in the funding of the Money Advice Service to assist the rising number of people seeking help with their debts.

It is only right that the industry pays the levy, which is a drop in the ocean compared with the amount it spends on advertising. My two-year-old grandson can recognise the Wonga grannies; I have taught him to boo at them every time they appear—and they appear so often between children’s programmes. This blatantly targets young families, who can easily be vulnerable to sudden income pressures. As is the case with gambling, there should be a sector-specific code that limits such broadcasts until after 9pm, and companies should be expressly prohibited from advertising during any programme likely to appeal to anyone under the age of 18.

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I mentioned new products and I want to raise a note of caution about a company that my hon. Friend the Member for Islwyn (Chris Evans) has mentioned, namely Amigo Loans. There are no credit checks for the borrower, but the friend might have to repay all the loan and end up with a damaged credit record. I wonder how many people remain friends after that happens. New products are emerging all the time—often they are old products with a new spin—so careful monitoring and transparency are key.

One of my constituents thought that they had borrowed money from Cash Lady, when that is actually a broker. We need to prevent more people from finding themselves in that situation. When my constituent wanted to contact the lender, they had great difficulty in finding out who it actually was.

The trade and exchange of consumer details have to be curbed. It cannot be right that when a friend of mine applied for a loan as a test, without completing the transaction, they had 24 unsolicited texts offering high-cost loans within the next 48 hours.

The cap on the total cost of credit has been ably and comprehensively covered by my hon. Friend the Member for Walthamstow (Stella Creasy). I support the decision of my hon. Friend the Member for Sheffield Central (Paul Blomfield) to choose this topic for his private Member’s Bill. The interest that his work is generating is helping to shine a light on the industry. Hopefully, that will assist the FCA in devising and enforcing a proportionate but firm regime to protect the consumer.

There are vast profits in this industry, as we have seen this week. Let us have commensurate protection.

1.30 pm

Justin Tomlinson (North Swindon) (Con): As the chair of the all-party parliamentary group on financial education for young people, I welcome the debate secured by the hon. Member for Islwyn (Chris Evans), who made an excellent speech. We have also heard pragmatic speeches from my hon. Friends the Members for Thurrock (Jackie Doyle-Price) and for Worcester (Mr Walker) and the hon. Member for Makerfield (Yvonne Fovargue), and a characteristically passionate speech from the hon. Member for Walthamstow (Stella Creasy).

Payday lending is controversial. There are many who think that the Government should regulate it out of existence. Ultimately, we need to understand how the payday lending industry has evolved and how that has been led by consumers. It exists because people wanted access to small amounts of money for a short period of time, not long-term loans for short-term problems, as was offered by the traditional banking system. A Consumer Finance Association report showed that younger people like the convenience of online interaction and the quick decisions that payday lenders offer in contrast to the relatively formal bureaucracy of putting on a suit, going to a bank and justifying oneself. Banks have been unwilling to lend to people whom they consider to be high-risk.

All the speeches today will understandably press for action to protect the consumer—I will list a ream of things that should be done—but such action must be taken with consideration. Anything less and we will simply push vulnerable consumers into the hands of the

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black market and illegal loan sharks. We have to look at why the market is not working in the interests of consumers and seek to change that.

There is a growing consensus that many of our consumer markets do not always work in the interests of consumers. Be it Government interventions to regulate pricing in the energy industry or scandals such as payment protection insurance, there are signs everywhere that the consumer is often at the mercy of markets, rather than at the heart of them. As a recent working paper by my hon. Friend the Member for South Thanet (Laura Sandys) commented:

“Good markets put consumers in the driving seat to make, shape or break products… Bad markets disguise, mislead or control consumer choice”.

That point is key, especially given the vulnerable nature of the consumers. In this industry more than most, consumers need to be in the driving seat, because for many people, the consequences of bad market characteristics in payday lending are severe.

There is a fundamental asymmetry in the information within the payday lending market. That is at the root of why the market does not work in the consumer’s interest. The market distorts decision making so that rather than making an informed decision based on price, the consumer is led into favouring other factors above all others in making their decision. Of those factors, convenience is the most prominent. Although convenience is important and of benefit to consumers, it is problematic when it becomes the primary basis of competition in the market as it itself conveys no price information. Without clear price information, consumers are unable to appreciate relative value in order to make informed and savvy financial decisions.

As we have heard, an investigation of the 50 main payday lenders by the OFT found that 60% of them emphasise speed and quick access to money in their advertising. The cost of the loan is at best a second thought and is often presented in a muddled way through the use of misleading and confusing APR figures. In short, without price information, competition is undermined. That leads to reduced choice. Consumers are led into making a decision based primarily on convenience. For the market to work in their best interest, it needs to enable consumers to make a decision in which price is the key consideration. Convenience should be only a secondary factor.

I have a number of recommendations. We are coming up with quite a shopping list for the Minister. The Government should intervene to improve the information that is available in the market—most notably the pricing information—to encourage price competition. With better information and clearer competition, the supply-side control will weaken, allowing consumers to call the shots. That intervention should take three main directions, forming a tripartite approach to the problem.

First, we must reform the information structures. We all agree that the cost of loans should be displayed in cash terms. APR is confusing, even with financial education in the national curriculum. I thank all Members who supported the cross-party campaign that I led on that issue. Let us be frank: even Treasury Ministers would struggle to work out the cost of an APR rate. It is an incredibly complex calculation. The Government should consult on and implement a standard unit for lenders to

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allow for price comparison, such as the cost per pound that is borrowed per day. Greater minds than mine can work that out.

We should also have real-time credit checking. We all agree that people should be able to borrow only what they can afford. The horror stories of people taking out multiple payday loans are totally unacceptable. Part of the solution is real-time credit checking. The system is not quite there yet. Perhaps we should place a levy on the industry to get it in place. It is then crucial that the FCA enforces it.

Secondly, we need to improve access to information. I have mentioned financial education, which will put the next generation of consumers in a better position to make informed and savvy financial decisions. We also need access to independent debt advice and advice on whether products are right for people. Just as we have health warnings about smoking, when people attempt to take out one of these products, there should be a telephone number or a website that is advertised. Before Citizens Advice is snowed under with millions of calls, I say again that there should be a levy on the industry to pay for free, independent advice for consumers who are not equipped to make informed decisions.

Thirdly, we must complete the information circle. We should look to restore credit ratings. Consumers often choose high-cost credit because the traditional banking system does not wish to lend to them. People might choose payday lending, which is an expensive form of borrowing, because it is the only option. However, when they manage to repay the loan, they should have their credit rating repaired and should be allowed back into the mainstream.

We need to give the regulator teeth and ensure that it uses them. My hon. Friend the Member for Thurrock made some important points in that regard. It is clear that the regulator has often stood by when it could have become involved. We need the regulator to take a proactive approach. I have been very critical of doorstep lenders—something that was mentioned by the hon. Member for Islwyn. Such lenders may have good customer satisfaction ratings, but when people sell on a commission basis, there is always the potential for problems. We have seen that even in the traditional banking system with insurance products. Often, the consumers of such products are the least well equipped to make complicated complaints and to bring matters to a regulator to take action if they have been poorly treated. We therefore need mystery shoppers who will step in and find out whether nudge, nudge sales techniques are encouraging people to take on debt that they do not want or need.

I would like to see an affordability test, a limit on the number of roll-overs that can occur on an individual loan and for debts to be frozen when consumers are struggling so that they do not escalate. We also need to look at the cost of the licence. It costs only £1,500 to set up a payday lending company. With a few hundred pounds, people can get themselves up on the Google ratings and end up lending to all sorts of people. In the two years that it takes for action to be taken, they can reinvent themselves. Let us charge more and use that money to pay for independent debt advice and the other things that I have called for.

We should consider a cap on the cost of a loan, but we need people to suggest what that should be.

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Richard Graham (Gloucester) (Con): My hon. Friend is making a series of powerful points, as did the hon. Member for Makerfield (Yvonne Fovargue) and my hon. Friend the Member for Worcester (Mr Walker). He has not touched on the role of credit unions, but perhaps he is going to do so. My hon. Friend the Member for Worcester raised the issue of capacity. Is my hon. Friend aware that Lloyds bank has given considerable help to the Gloucestershire credit union and is thinking of providing even more help not only to our credit union, but to others around the country? There are opportunities for MPs to build capacity in their credit unions.

Justin Tomlinson: I thank my hon. Friend for that intervention, because it relates to my very next point and means that I now have longer than seven seconds to summarise that.

The Government should do more to promote a savings culture to prevent consumers from finding themselves in positions of stress in which they do not have the time to make an informed decision. Also, as many Members have said, we should strengthen credit unions and examine innovative products that come along involving community-based people who know the interests of their local community. There are many good examples that we should champion.

Finally, we must consider the mainstream institutions. They were caught sleeping, and the market has changed. It has gone online. People do not necessarily want to turn up at a bank in a suit to justify themselves. The market developed because there was a gap and the consumer wanted online services. We all instinctively trust the traditional institutions to do a better job, but they need to be in a position to do so.

Damian Hinds (East Hampshire) (Con): I am grateful to my hon. Friend for giving way during his persuasive speech. Does he agree that the traditional, mainstream financial institutions could and should also innovate in the area of budgeting accounts, or jam jar accounts? Those accounts help to prevent people from tripping into debt in the first place and can also help to foster the savings culture that he mentioned. By siphoning off small amounts of money on pay day, people can build up a small savings account.

Justin Tomlinson: I thank my hon. Friend, who has been a champion of plans for jam jar banking. It is a fantastic idea, because we all know people who, even with the best will in the world and the best financial education, are not fantastic at handling money—that is true of many of us. At times of distress, such as death, family breakdown, partnership break-ups or unemployment, they can quickly be overwhelmed. Products that can help people manage as well as possible on limited money give the consumer power. As I said, we need to ensure that the consumer is in the driving seat. If we can do that, the market will respond in a way that is better for the consumer.

1.41 pm

Paul Blomfield (Sheffield Central) (Lab): It is a pleasure to follow the hon. Member for North Swindon (Justin Tomlinson) and congratulate him on his powerful speech and his impressive shopping list, much of which, as he will know, is included in my High Cost Credit Bill, of

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which he was a strong supporter. I am grateful for the support that the Bill received on both sides of the House, and today’s debate is demonstrating a great deal of unanimity about how we need to tackle payday lending. I am only sorry that the Government did not take the opportunity to build on that cross-party unity by supporting the Bill on 12 July.

After recent developments, the measures that we all seek are even more important. Since 12 July we have seen the report by Citizens Advice stating that three out of four borrowers seeking advice from its service have been treated unfairly by payday lenders; growing concerns about the industry, perhaps most powerfully reflected in the indictment of payday lenders by the Archbishop of Canterbury; and more evidence of how the sector is growing, with the profits that Wonga has declared this week being just one illustration.

Earlier this week I met staff at Centrepoint, who told me of the shocking way in which payday lenders are now targeting the vulnerable young people with whom they work. In a country-wide survey, it found a significant increase in the number of young homeless people turning to payday loans. It found young people, mostly under 21 and out of work, taking out payday loans for food and other essential purchases or, as other Members have said, to pay back other debts. As one Centrepoint worker said:

“These payday loans are a killer…I have young people that owe thousands.”

The reasons that young people gave were ease of access, irresponsible promotion, a lack of affordability checks and misunderstanding of costs—all factors that other Members have raised and that my Bill would tackle.

We need effective regulation of payday lenders that would stop them giving loans to people who cannot afford to pay them back; stop hidden and excessive charges; stop repeated roll-overs; stop lenders raiding borrowers’ bank accounts without their knowledge; stop irresponsible and misleading advertising; and require lenders to promote free and independent debt advice.

I should like to use this opportunity to respond to some of the points that the Minister made in her speech in the debate on my Bill on 12 July. I am grateful that she said that those of us proposing legislation were spot-on about the problems in the industry, but she disagreed about the

“basic principle of whether the FCA is best placed to regulate these matters or whether the Government should mandate it to do so”.—[Official Report, 12 July 2013; Vol. 566, c. 689.]

That is certainly a point of significant difference, and I refer to the comment of my friend the hon. Member for Worcester (Mr Walker), who has been a great supporter of the Bill, that it is the responsibility of Parliament to right the wrongs that are brought to it, not by getting involved in the detail of regulation but by giving clear policy direction where it is appropriate, in this case to the Financial Conduct Authority.

In July, the Minister said that the FCA would produce a draft rulebook in September, which would go out for consultation. We are now in September, albeit in the early days, but on making an inquiry to the FCA yesterday I was unable to find out when the rulebook would be published or what the arrangements for consultation were. I would be grateful if the Minister told the House when those rules will be published.

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I turn to how the Minister thought in July we should handle some of the problems that we all agree exist. On advertising, she said that when considering regulation it was important to proceed on the basis of evidence, and that her Department had commissioned research. However, she made it clear that she agreed that there was irresponsible practice, which has been referred to again today, and said that people should be signposted to debt advice. Does she agree that we need research not into whether advertising should be regulated but simply into how? Will she update the House on the research and confirm that the FCA will regulate advertising?

I think we all agree that lenders should assess affordability, which they do presumably so that they can determine ceilings above which they should not lend. If that is the case, does the Minister agree that we should give the FCA the responsibility to set ceilings? We know from experience that we cannot trust the lenders.

On roll-overs, the Minister acknowledged in July that

“if some companies are making significant proportions of their profit from roll-overs, their business model in fact depends on people’s not repaying in time”.—[Official Report, 12 July 2013; Vol. 566, c. 692-93.]

She said that the FCA would look into the issue. However, the Office of Fair Trading has told us that 50% of payday lender revenue comes from the 28% of loans that are rolled over or refinanced at least once, and that 19% of revenue comes from the 5% of loans that are rolled over or refinanced four or more times. A number of Members have referred to that aspect of the problem today. Does the Minister agree with all the organisations working in the area that we should simply direct the FCA to limit roll-overs?

Finally, there is the crucial issue of CPAs. My hon. Friend the Member for Islwyn (Chris Evans) referred to a horrific example in his excellent opening speech today, and my hon. Friend the Member for Makerfield (Yvonne Fovargue) also referred to them. In her speech in July, the Minister referred to the clauses in my Bill that would require lenders to give three days’ notice of CPAs and inform borrowers of the right to cancel. She said:

“Those measures are already in the voluntary code. If they were stuck to and ended up in the FCA rules, that would be helpful.”—[Official Report, 12 July 2013; Vol. 566, c. 697.]

If that is the case, why not simply tell the FCA to put them in the rules? Will she confirm her view that measures on CPAs should be included in the rules and should be part of the published rulebook and the consultation?

To give other Members an opportunity to contribute and to give the Minister ample time to reply to my points, I will draw my remarks to a close. Those of us who have spoken today, and Members who supported my Bill back in July, are committed to ensuring that there is effective regulation of payday lenders. We will not give up until the measures contained in the Bill are in place, whether or not through the Bill itself, to ensure effective regulation and tackle the scourge of payday lending.

1.49 pm

Tracey Crouch (Chatham and Aylesford) (Con): It is an honour to follow the hon. Member for Sheffield Central (Paul Blomfield). I was proud to support his

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Bill and am sorry that it will not make its way through Parliament. I hope that the Government are listening carefully to the cross-party support that it is getting and will take forward some of the sensible measures proposed in it.

I also congratulate the hon. Member for Islwyn (Chris Evans) on introducing this debate on an important issue about which many of us feel strongly. It is also important to congratulate the hon. Member for Walthamstow (Stella Creasy), who has done a great deal to raise the issue both inside and outside Parliament. During many parts of her speech today I was nodding furiously, as I found myself in violent agreement with her on some of the important issues that she raised.

I am sorry that my hon. Friend the Member for East Hampshire (Damian Hinds) has left the Chamber. He has done a great deal of work on credit unions. I also fundamentally support the work that my hon. Friend the Member for North Swindon (Justin Tomlinson) has done on improving financial education.

The debate has been interesting and I will try not to repeat the points hon. Members have made. My hon. Friend the Member for Thurrock (Jackie Doyle-Price) said that the sector is at a crossroads, which was an interesting comment. We must ensure that we take the right path. High-cost credit is an incredibly important issue for many of our constituents and will be in future for all the reasons hon. Members have outlined.

High-cost credit is defined as credit

“comprising of payday and other short-term small-value loans”.

However, it is important to note that it is not the preserve of alternative financial services providers. There are problems in the wider credit industry. The example I will give is highlighted by StepChange. Its research shows that

“a borrower making minimum payments for 18 months on a typical”


“card for an average balance of just over £1,800 pays £44 for every £100 borrowed”.

It is important that we do not exclude from the debate means of credit other than payday loans.

When I first spoke in Parliament about high-cost credit, I drew on my experience. When I came to London as a 21-year-old graduate, I worked as a researcher in Parliament, earning £7,000 a year. I got myself into a stupid amount of debt—£15,000—very quickly, not because I was trying to pay rent, meet bills and buy food, but because I wanted to keep up with the Joneses. I wanted to go out wearing nice clothes and to have good evenings out with my friends, all of whom worked in the City and earned a lot more money than I was earning. I borrowed a lot of money on credit cards, I was always at my overdraft limit, and borrowed money on store cards. I bought things on store cards that people normally pay for with small cash. I could not afford to live the life I wanted to lead in my not-very-well-paid job as a researcher.