Osborne denies payday loan U-turn
George Osborne has denied caving in to Labour pressure after announcing a cap on the costs of controversial "payday loans".
The Chancellor said the limit, which will cover fees on the lending as well as interest, would help prevent vulnerable consumers being exploited.
The Government will bring in powers to impose the restriction through an amendment to the Banking Reform Bill, but the level of the cap will be set by the new Financial Conduct Authority (FCA).
The move comes after Opposition leader Ed Miliband complained earlier this month that payday loans firms such as Wonga were "running riot through our communities".
Shadow consumer affairs minister Stella Creasy has been among those pushing for tougher rules - but ministers had resisted the idea of a cap, warning that less creditworthy individuals could end up being forced into the arms of loan sharks.
In a round of broadcast interviews this morning, Mr Osborne rejected claims of a U-turn, or that he was aping Labour by intervening in markets.
"I don't accept it's a departure from any philosophy," he said.
"The philosophy is we want markets that work for people, and people who believe in the free market, like myself, want that free market to be properly regulated."
He added: "The idea that we are following Labour - the Labour Party were in office for 13 years, Ed Balls and Ed Miliband. This issue came up, they were in the Treasury all those years, they did absolutely nothing.
"I am happy to pay tribute to some individual MPs like Stella Creasy, like Robin Walker the Conservative, who have campaigned on this issue.
"But the idea that the Labour leadership, who were running this country for 13 years and did nothing in this space, took a lead is, frankly, fanciful."
Mr Osborne told ITV's Daybreak: "We are going to introduce a cap on the cost of these loans and I mean a cap on all the different elements brought together because it is not just the interest charge, it's also the arrangement fees and the like, to protect people who take out these loans to make sure they are not being exploited, to make sure hard-working people get a fair deal from the financial system, whether it's the banks or the payday lenders or internet lenders...
"The best thing is to empower this body we have created, the consumer regulator, the consumer authority is going to look at all of this because I think one of the traps here is to think you can just control one part of this industry and then you'll find it's a bit like squeezing a balloon - the costs will appear somewhere else."
Liberal Democrat business minister Jo Swinson warned in September that interest rate caps to tackle payday lenders could result in "unintended consequences".
She said rate-capping could mean people who might be able to afford to pay back loans finding they cannot get credit and possibly turning to "unsavoury alternatives".
Business Secretary Vince Cable, speaking on BBC Breakfast, said: "What we have done, and Jo Swinson has led this, is we have been introducing tougher regulation of payday loans, this is something that has already been agreed, is going through Parliament.
"There has been pressure to make this stronger, through the form of interest rate caps, and Liberal Democrat parliamentarians have got amendments down in Parliament.
"I was going to call them in with Jo Swinson to talk to them about how we take it forward. There is evidence in both directions here - in the United States they have introduced caps on interest rates, they do seem to work
"On the other hand, we commissioned a study from the University of Bristol that warned about the dangers, if it is not done carefully, of letting the 'baseball bat brigade' into this industry.
"So it has got to be very, very carefully done. But the Chancellor and the Government in general have clearly listened to the people campaigning for the interest rate cap and are now taking action on it."
Ms Creasy warned that "the devil really is in the detail".
"It was us who fought tooth and nail to give the regulator the power to do this but the regulator was saying 'Look, we need the political will to make capping a reality'," she told Today.
"This move today leaves in tatters the regulator's consultation that was announced just a few weeks ago where they specifically ruled out bringing in a cap because they felt there wasn't the political will to do it."
Richard Lloyd, executive director of consumer group Which?, said: "We're pleased the Government is committed to taking tougher action on payday loans by capping the sky-high fees and charges that drag people down in a spiral of debt.
"This will need to be part of a wider clean-up of the credit market. The Government and the Financial Conduct Authority must clamp down on irresponsible lending and excessive fees across the board, whoever the lender."
Citizens Advice chief executive Gillian Guy said: "This is a cap on the exploitation of people struggling with the rising cost of living. Payday lenders have failed to stick to their own promises to treat customers fairly. The Government's plan to cap the cost of loans only goes to show how out of control the industry is.
"Government must also tackle the underlying need for payday loans and ask what is driving people to short-term credit in the first place. The squeeze on living standards has caused a boom in payday lending as people turn to short-term loans to cover emergency costs and in some cases pay for everyday essentials. Rising energy prices, food costs and shrinking incomes means that more and more people will turn to short-term credit to help them get by."
New figures released by Citizens Advice found that three out of four borrowers find it difficult to repay payday loans, while 62% of loans still come without proper checks to assess whether borrowers can afford to repay.
Unite union g eneral secretary Len McCluskey said: "This belated U-turn is welcome but will be cold comfort for those struggling to make ends meet who have been forced into a spiral of debt and fallen prey to the sharp practices of payday lenders. Questions still remain about what level interest rates will be capped at and when.
"Our research shows that, as the grip of Cameron and Osborne's cost of living crisis has tightened, the average amount being borrowed to get through to the end of the month has soared to £660. While wages have plummeted and energy and food prices have shot up, the Government has sat by and let the Wild West of the credit industry rip with no thought of the human cost."
Anne Longfield, chief executive of charity 4Children, said: "Payday loans drag too many families into a vortex of unsustainable debt, so we welcome the Government's plans to introduce legislation to cap their cost. However, the Government also needs to focus on being fair to families, by ensuring that families are able to take up the kind of decent jobs they need not to have to resort to payday loans to meet the basic costs of living."