A UK Labour government would cap credit card interest so that no-one pays back more than twice the amount of their original borrowing, shadow chancellor John McDonnell has announced.
In his keynote speech to Labour’s annual conference in Brighton, Mr McDonnell will accuse the Government of creating a “debt crisis” which is becoming a threat to the economy, with 3 million people trapped in persistent debt with credit cards in the red by a total of £14 billion.
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He will call on ministers to apply the same cap on credit card debts as on pay-day loans, limiting interest and charges to 100% of the amount borrowed. He will promise that if they fail to act, Labour will change the law when it wins power.
The Financial Conduct Authority estimates that more than 3 million credit card users – a tenth of the total – are in persistent debt, handing over more in interest and charges than in paying down their loans over the past 18 months.
The average amount outstanding for those in persistent debt is £3,464, meaning that these people between them owe around £14 billion on their cards.
Wider consumer debt, including credit cards, personal loans and overdrafts, has reached more than £200 billion for the first time since the crash of 2008 and overall household debt stands at a record of more than £1.8 trillion.
Mr McDonnell will say: “The last seven years of Tory economic failure has created the perfect storm, as wages have fallen behind, more and more families are being pushed deeper into debt.
“Under pressure, the Government has been forced to cap interest payments on payday loans. But more than 3 million credit card holders are trapped by their debt. They’ve paid more in interest charges and fees than their original borrowing.
“The Financial Conduct Authority has argued for action to be taken on credit card debt as on payday loans. I am calling upon the Government to act now to apply the same rules on payday loans to credit card debt. It means that no-one will ever pay more in interest than their original loan.
“If the Tories refuse to act, I can announce today that the next Labour government will amend the law.”
Mr McDonnell will also announce plans for a Strategic Investment Board, made up of the Chancellor, Business Secretary, Governor of the Bank of England and the new National Investment Bank, to channel funding into keeping Britain up to speed with the “fourth industrial revolution”.
While new technology is unleashing huge changes in the UK, the country is led by “a Government full of people teleported from the 18th century”, he will say.
“While the Tories remain stuck in the language and values of the Victorian era we are determined that Britain embraces the possibilities of technological change – scary though they may be,” Mr McDonnell is expected to say.
“By the middle of this century it is possible that up to half of all the jobs we do now could be automated away.”
Labour’s Strategic Investment Board will “reconnect our financial system with the economy of research and development and production”, Mr McDonnell will say.
” The Strategic Investment Board will scrutinise and co-ordinate the delivery of essential funding out of the hands of the speculators and into the technologies and industries of the future.
“So to the technology sector, to the universities, to the researchers and the innovators we say: help is on the way.
“The jobs that remain can – if we let them – be exploitative, dangerous, degrading, and dead-end.
“Or the jobs we create can provide good, secure employment in work that is fulfilling and meaningful, in communities where pride and prosperity has been restored.”
On the second day of the Brighton conference, Labour delegates are also due to debate the issue of Brexit, which has seen leader Jeremy Corbyn resist calls to commit the party to permanent membership of the EU single market.
Chief Secretary to the Treasury Liz Truss said: “We set up the Financial Conduct Authority which is ensuring credit card firms do more to help their customers clear debt and, from January, rip-off credit card charges will be outlawed.
“The best way to help people with their personal finances is with our balanced approach to the economy, which is creating more well paid jobs and cutting taxes for working people.
“Labour take it too far and would damage our economy, meaning fewer jobs, higher taxes and more debt. Working people would pay the price, just like they did last time.”
UK Finance chief executive Stephen Jones said: “Access to consumer credit is important for economic growth, and lenders work hard to ensure the balance is right between helping customers to borrow with the right product while ensuring longer term affordability.
“The FCA’s extensive credit card market study looked very closely at the issue of persistent debt. It considered whether a cap on interest charges should be introduced, but concluded that there were preferable alternatives which the industry is supportive of and will implement when the current consultation is concluded later this year.”
Mr McDonnell said he had a credit card but did not use it.
He told Sky News: “I use a debit card, I gave up using the credit card side of that some years ago, because a lot of people get into problems when they borrow on credit cards.” (PA)